What Is Covered by Carriage and Insurance Paid To (CIP)?
CIP (Carriage and Insurance Paid To) is an Incoterm that governs how transportation costs, insurance obligations, and risk are allocated between sellers and buyers in international trade.
Under CIP, the seller is responsible for arranging and paying for carriage and insurance to a named destination. However, risk transfers to the buyer much earlier—at the moment the goods are handed over to the first carrier. This separation between cost responsibility and risk transfer is a defining feature of CIP.
How Much Insurance Is Required Under CIP?
Under Incoterms® 2020, the seller must procure insurance covering at least 110% of the contract value, typically under Institute Cargo Clauses (A) or equivalent, unless otherwise agreed by both parties.
While this insurance satisfies the minimum CIP requirement, it may not cover every commercial risk. Therefore:
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The seller must provide compliant minimum coverage
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The buyer should assess whether additional insurance is needed
Buyers often choose to purchase supplementary insurance for high-value, fragile, or time-sensitive cargo.
What Modes of Transport Qualify for CIP?
CIP is one of the most flexible Incoterms because it applies to all modes of transport, including:
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Road
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Rail
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Sea and inland waterways
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Air freight
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Multimodal and combined transport
This makes CIP particularly suitable for modern global supply chains involving multiple carriers or transport methods.
Who Does CIP Apply To?
CIP applies when:
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The seller pays for carriage and insurance to a named destination
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The buyer assumes risk once goods are delivered to the first carrier
In practical terms, once the seller hands the goods over to the carrier or another nominated party, any loss or damage becomes the buyer’s responsibility, even though the seller continues paying transport and insurance costs.
Extra Protection Considerations Under CIP
Although CIP requires the seller to purchase insurance, this coverage may still be limited by exclusions. Events such as delays, improper handling, or certain force majeure incidents may not be fully covered.
To reduce exposure:
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Buyers should review the insurance policy carefully
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Additional coverage can be purchased independently
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Buyers may negotiate with the seller to extend or upgrade insurance coverage
Without supplementary insurance, buyers may face substantial losses if damage occurs outside the insured scope.
Alternatives to CIP
Depending on the transaction structure and logistics capabilities, other Incoterms may be more suitable:
FOB (Free On Board)
Seller delivers goods on board the vessel; buyer assumes cost and risk thereafter.
FCA (Free Carrier)
Seller delivers goods to a carrier or location chosen by the buyer; risk transfers at handover.
EXW (Ex Works)
Seller makes goods available at their premises; buyer handles all logistics and risk from that point.
Each alternative shifts responsibility, cost, and risk differently and should be chosen based on operational capability and risk tolerance.
Conclusion
CIP is a widely recognized and practical Incoterm that combines seller-paid transport and insurance with early risk transfer to the buyer. It works particularly well in international transactions where goods move across borders via air, sea, rail, or multimodal transport.
To use CIP effectively, both parties must:
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Clearly define the named destination
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Understand the insurance scope and limitations
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Plan for customs duties and taxes
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Align responsibilities in the sales contract
When applied correctly, CIP offers predictability, flexibility, and efficiency in global trade.
Frequently Asked Questions About the CIP Incoterm
Q1: What does CIP mean in international shipping?
CIP means the seller pays for transportation and insurance to a named destination, while risk transfers to the buyer when goods are handed to the first carrier.
Q2: What are the seller’s obligations under CIP?
Arranging and paying for carriage, securing insurance at 110% of contract value, and completing export customs clearance.
Q3: When does risk transfer under CIP?
Risk transfers to the buyer as soon as the goods are handed over to the first carrier.
Q4: What type of insurance is required under CIP?
Minimum insurance of 110% of contract value under Incoterms® 2020, usually Institute Cargo Clauses (A).
Q5: What are common alternatives to CIP?
FOB, FCA, and EXW are common alternatives depending on cost and risk preferences.
Professional Insight
For businesses seeking to apply CIP effectively—especially in complex, multimodal shipments—working with an experienced freight forwarder like China Freight Hub can significantly reduce risk, improve cost transparency, and ensure compliance across borders.