Why You Should Stop Relying on CIF and Get Your Own Insurance

Imagine You're the Buyer

You've just signed a contract for a container of ceramic tiles from a supplier in Vietnam, and you agreed to CIF (Cost, Insurance, and Freight). The supplier arranges the shipping, pays the freight, and gets insurance. You think you're covered. Then, a storm hits the vessel, and the cargo is damaged. You file a claim, but the insurance policy only covers a fraction of the loss. That's because under CIF, the seller only has to provide minimum insurance coverage—Institute Cargo Clauses (C)—which may not cover theft, water damage, or rough handling (ICC, Incoterms rules). You're left with a pile of broken tiles and a difficult claim. This is a classic trap for buyers, and it's why you should seriously reconsider your approach to Incoterms.

Know Your Incoterms: The Risk Transfer Point

Incoterms are standardized trade rules published by the International Chamber of Commerce (ICC) that define responsibilities, costs, and risks between buyer and seller (ICC, Incoterms rules). The current version, Incoterms 2020, groups rules by mode of transport: seven for any mode, and four for sea and inland waterway (US trade.gov Incoterms). For sea freight, you've got FOB, CIF, CFR, and FAS. Under FOB (Free On Board), the seller delivers goods once they're loaded on board the vessel, and risk transfers to you at that point. Under CIF, the seller pays ocean freight and minimum insurance to the destination port, but risk still transfers to you at loading. That's the most commonly misunderstood aspect of CIF (ICC, Incoterms rules). You might think you're covered until the goods arrive, but actually, you bear the risk from the moment they're loaded. So, why would you let the seller control the insurance when you're the one at risk?

The Real Cost of CIF: Hidden Risks and Lack of Control

When you buy on CIF, the seller controls the freight and insurance. They'll pick the cheapest option to keep their costs down, which often means you get minimum coverage. As mentioned, that's Institute Cargo Clauses (C), which excludes many common perils like theft, water damage, and rough handling (ICC, Incoterms rules). If your cargo is stolen or damaged by seawater, you might find you're not covered. Even if you think you can rely on the seller's insurance, you have no direct claim—you'd have to go through the seller, which can be a nightmare. In contrast, if you buy on FOB, you control the shipment from the port of loading. You can choose a reliable carrier and, more importantly, arrange your own cargo insurance with comprehensive coverage. It costs a bit more, but it's worth it for peace of mind. And here's a quick tip: if you do use CIF, check the insurance certificate to see what's actually covered. Often, it's not enough.

But What About the Seller's Convenience?

You might argue that CIF is easier because the seller handles the logistics, and you don't have to worry about arranging freight and insurance. That's true, but you're paying for that convenience with risk. The seller has no incentive to protect your interests once the goods are loaded. They've fulfilled their obligation. If you want to avoid the hassle, you could use FCA (Free Carrier) for any mode of transport, which was revised in Incoterms 2020 to address issues with on-board bills of lading (ICC, Incoterms 2020). Under FCA, you can instruct the carrier to issue an on-board bill of lading to the seller once goods are loaded, which helps with letters of credit. But even then, you're still in control of the main carriage. The bottom line: if you're importing regularly, you should invest in understanding Incoterms and take control of your shipments. Don't let the seller dictate terms that leave you exposed.

Take Control: Switch to FOB or FCA

My recommendation is blunt: for sea freight, switch from CIF to FOB. For any mode, use FCA instead of CPT or CIP. Why? Because you'll have control over the carrier and insurance. You can also save money in the long run by negotiating better freight rates yourself. But there's a catch: you need to understand the responsibilities. Under FOB, you're responsible for the main carriage, insurance, and import clearance. That's a lot, but manageable if you have a good freight forwarder. And with Incoterms 2020, costs are now clearly listed in article A9/B9, so you can see exactly what you're paying for (ICC, Incoterms 2020). Also, note that CIF only applies to sea and inland waterway transport (ICC, Incoterms rules). If you're shipping by air, road, or rail, you can't use CIF anyway. So, for land or air freight, you might already be using FCA, which is good. But for ocean, make the switch. It's a bit more work, but it's your cargo, your risk, and your money. Protect it.

Quick tip: Always verify the insurance coverage under CIF. If it's only Institute Cargo Clauses (C), consider whether you need additional coverage or switch to FOB.

Sources

• ICC (Incoterms rules) - https://iccwbo.org/business-solutions/incoterms-rules/
• US trade.gov Incoterms - https://www.trade.gov/know-your-incoterms
• ICC (Incoterms 2020) - https://iccwbo.org/business-solutions/incoterms-rules/incoterms-2020/