What Is CIP in Incoterms, and How Does the Seller's Required Insurance Work?

Of the eleven Incoterms 2020 rules, CIP is one of the more frequently misread, largely because its name describes two obligations — carriage and insurance — while staying silent about the one thing buyers usually care about most: when does responsibility for a damaged or lost shipment actually shift from seller to buyer? The name answers what the seller pays for. It doesn't answer who bears the risk while the goods are in transit, and those two questions have different answers under CIP, which is exactly the source of most confusion around this term.

CIP sits in Incoterms' 'any mode of transport' category, alongside EXW, FCA, CPT, DAP, DPU, and DDP — meaning it isn't restricted to sea freight the way CIF, FOB, FAS, and CFR are. A CIP shipment can move by truck, air, ocean, rail, or any combination, which makes it a common choice for containerized cargo moving on multimodal routings, including much of the sea-plus-inland-trucking freight that moves into and out of Thailand.

The Two Obligations Behind the Name

Carriage: under CIP, the seller books and pays for transport of the goods from the point of delivery all the way to a named destination that both parties agree on in the sales contract — this could be a port, an inland container terminal, a specific city, or a named address. The seller isn't obligated to use any particular carrier or routing beyond what's usual for the trade, but it does bear the cost of getting the goods to that named point.

Insurance: separately, the seller must procure cargo insurance covering the buyer's risk of loss or damage during that same carriage, and name the buyer (or whoever the buyer designates) as the party entitled to claim under the policy. This is a meaningful obligation, not a formality — the policy has to actually respond if something goes wrong, and Incoterms 2020 set a specific minimum standard for how good that cover has to be, discussed below.

Both obligations run to the named destination the contract specifies — which is why naming that destination precisely, down to a specific address or terminal where ambiguity is possible, is one of the more consequential details to get right when a sales contract specifies CIP.

Where Risk Actually Transfers — and Why It Doesn't Match the Cost

This is the part that trips people up: CIP's risk transfer point has nothing to do with the named destination the seller is paying to reach. Risk of loss or damage passes from seller to buyer as soon as the goods are delivered to the first carrier — for example, when a container is handed over to a trucking company for the first inland leg, or loaded onto the first vessel, whichever the contract's delivery point specifies. Everything that happens to the cargo after that point is, strictly speaking, the buyer's risk, even though the seller is still the one paying the freight bill and holding the insurance policy.

This structure exists because CIP evolved as a cousin of CPT (Carriage Paid To) with an added insurance requirement, and CPT itself follows the same 'pay-to-destination, risk-transfers-early' logic that FCA does for cost-only terms. The practical effect is that a buyer under CIP is financially exposed to transit risk from a much earlier point in the journey than the seller's payment obligation would suggest — which is precisely why the insurance requirement matters as much as it does: the buyer is carrying that risk, but the seller is the one contractually obligated to have bought a policy that responds to it.

The Insurance Requirement: Why CIP and CIF Aren't Interchangeable

CIP and CIF are sometimes treated as loosely equivalent because both put the insurance obligation on the seller. Since the Incoterms 2020 revision, they aren't equivalent, and the difference is deliberate. CIF still requires only a minimum level of cover — Institute Cargo Clauses (C), or an equivalent clause set — which insures against a limited, named list of perils (such as fire, vessel sinking, or collision) and excludes a good deal of the damage that actually happens to cargo in transit, including many forms of water damage, handling damage, and theft.

CIP now requires a materially higher minimum: Institute Cargo Clauses (A), or an equivalent, which is a broad, all-risks-style policy covering loss or damage from any external cause unless specifically excluded (the standard exclusions relate to things like inherent vice, willful misconduct, or war and strikes, which are usually addressed separately). The Incoterms drafting committee made this change specifically because CIP is used across a much wider range of goods and routings — including higher-value, multimodal cargo — where minimum cover was judged inadequate as a default. Sellers and buyers are still free to agree to a different level of cover in the contract, but Institute Cargo Clauses (A) is now the floor if the contract just says 'CIP' without specifying otherwise.

The practical upshot: a buyer receiving a CIP quote is entitled to expect broader insurance protection than a buyer receiving a CIF quote for a comparable shipment, and it's worth confirming in the sales contract or the insurance certificate itself that the policy meets — or exceeds — the ICC (A) standard, rather than assuming it automatically does.

What the Buyer Can Do With the Insurance Policy

Because the seller procures the insurance but the buyer bears the risk for most of the journey, Incoterms 2020 requires that the buyer be positioned to actually use the policy if something goes wrong — either as the named insured, or with the ability to have the seller's rights under the policy assigned or transferred. In practice, the seller typically provides the buyer with an insurance certificate or policy document as part of the shipping documents, and the buyer files a claim directly with the insurer (or through the seller, depending on how the policy is structured) if cargo arrives damaged or is lost in transit.

This is worth checking at the time documents are received, not after a claim becomes necessary — confirming the policy names the buyer as a beneficiary, covers the correct value of the goods, and states the correct scope of cover (ICC (A) or better) removes a source of dispute at exactly the moment a shipment problem makes everyone least patient for administrative back-and-forth.

When CIP Fits, and When Another Term Fits Better

CIP suits a seller who's comfortable arranging international transport and insurance and building those costs into the sale price, and a buyer who wants a landed price to a named point without managing the freight booking directly — while still understanding that they, not the seller, carry the transit risk. It's a common fit for multimodal shipments where a single named destination (an inland warehouse, for instance) makes more sense than a port-to-port term like CIF.

Where CIP tends to fit less well: a buyer who wants to control carrier selection and insurance terms directly is often better served by FCA (seller delivers to a carrier the buyer nominates, buyer arranges the main carriage) paired with the buyer's own cargo insurance. A seller unwilling to take on the administrative burden of procuring a compliant ICC (A) policy for every shipment might prefer FOB or FCA and let the buyer handle insurance entirely. And for straightforward port-to-port sea shipments where both parties are comfortable with minimum insurance cover, CIF remains simpler to administer, even though it offers less protection by default.

Example

Consider a Thai buyer importing electronic components from a supplier in Germany, agreed as CIP Bangkok (a named inland warehouse in the Bangkok metro area). The German seller books multimodal transport — trucking to a European port, ocean freight to Laem Chabang, and inland trucking to the named Bangkok warehouse — and pays for all of it. The seller also procures a cargo insurance policy meeting the ICC (A) minimum, naming the Thai buyer as the party entitled to claim, and sends the insurance certificate along with the other shipping documents.

Risk transfers to the buyer the moment the goods are handed to the first carrier — the trucking company collecting the cargo from the seller's factory in Germany — even though the seller is still paying for every remaining leg of the journey, including the inland trucking after the container clears Thai customs. If the container is damaged during the ocean leg, the Thai buyer — not the German seller — bears that loss commercially, but recovers it by filing a claim against the insurance policy the seller was contractually required to procure. The buyer separately remains responsible for arranging Thai import clearance and paying any applicable duties once the shipment reaches Thailand, since CIP doesn't shift that obligation to the seller.