Most manufacturers agree an Incoterm, book the container, and only think about cargo insurance once something has already gone wrong at sea. By then it is too late to buy it. The confusion is rarely about whether cargo insurance exists — it is about who is contractually obliged to buy it, what the policy actually pays out for, and which piece of paper the buyer or their bank will actually accept as proof of cover.
Who is responsible for cargo insurance under each Incoterm
Under CIF and CIP, the seller is the one who must buy the insurance, not the buyer. Manufacturers who quote CIF sometimes forget this is a contractual obligation, not an optional extra, and only arrange cover after the buyer chases them for a certificate. It is worth checking the exact obligations against the Incoterms rule you have quoted before you assume anything about who pays.
Under FOB, FCA and CFR, the opposite applies: the buyer is responsible for insurance from the point risk transfers, and the seller has no obligation to arrange it at all. This is where problems appear in practice. A manufacturer ships FOB, assumes the buyer has taken out cover, and finds out — usually during a claim — that nobody did. If cargo is damaged in transit and there is no policy on either side, the loss sits with whoever cannot pass it on, which is often the exporter chasing an unpaid balance.
The fix is simple and should not depend on memorising Incoterm definitions: state in the sales contract, in writing, exactly who is buying the insurance and to what value. Do not leave it to inference from the Incoterm alone.
What a cargo insurance policy actually covers
A standard marine cargo policy covers physical loss or damage to the goods during transit — fire, sinking, dropping during handling, collision, water ingress. What catches manufacturers off guard more often is general average: if the carrier deliberately sacrifices cargo or incurs extraordinary cost to save the vessel and the rest of the cargo, every cargo owner on board shares that cost proportionally, whether or not their own container was touched. A shipper with an undamaged, on-time container can still be billed for a general average contribution weeks after arrival, and without cargo insurance that bill falls on them directly.
Standard policies typically exclude:
- Damage caused by inadequate or unsuitable packaging
- Inherent vice — deterioration of the goods themselves, unrelated to an external event
- Delay, unless a specific clause has been added
- War, strikes and civil commotion, which usually sit under a separate optional clause
None of this is exotic, but it is rarely read before the goods are loaded, only after a claim is rejected.
The certificate a buyer or bank actually asks for
An insurance policy and an insurance certificate are not the same document, and trade counterparts usually want the certificate — a shorter document confirming that cover exists for a specific shipment under the terms of a broader policy. Where payment runs through a letter of credit, the bank will check this certificate against the other shipping documents as a condition of payment, and it typically expects the insured value to sit above the plain invoice value rather than exactly matching it. Read the credit terms on this point before shipment, not after the documents are already presented and rejected.
What goes wrong in practice
The most common failures are not exotic, either:
- Insured value calculated on the ex-works cost of the goods rather than the full CIF value, leaving a gap if a claim has to cover freight and duty as well as replacement goods
- The certificate not ready in time to go into the same document set as the bill of lading and invoice, delaying presentation to the bank
- No survey or inspection arranged at the port of destination before damaged cargo is moved out of the terminal, which can undermine the claim entirely
- Assuming the freight forwarder’s own liability covers the loss — it does not. A forwarder’s liability is limited by contract and by convention, and is not a substitute for cargo insurance on the goods themselves
Buying cover without overpaying for it
Occasional exporters are usually better served by a single-shipment policy taken out per voyage. Manufacturers shipping regularly to West Africa tend to move onto an open or annual cover instead, insuring every shipment automatically under one set of terms rather than arranging a policy each time. Either way, get a quote from a broker before you quote a CIF price to a buyer, so the premium is built into the price rather than absorbed afterwards. And before you assume a route or a port is covered as standard, read the exclusions — the parts of the policy that determine whether a claim is paid are rarely the parts anyone reads first.
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