Carriage and Insurance Paid to (CIP): Definition and Example

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Carriage and Insurance Paid to (CIP): Definition and Example

Definition

Carriage and Insurance Paid to (CIP) is an Incoterm that requires the seller to pay freight and minimum insurance to deliver goods to a named destination. Risk of loss or damage transfers from the seller to the buyer when the goods are handed over to the carrier or the buyer’s appointed representative at the agreed place.

How CIP works

  • The seller arranges and pays for carriage to a named destination and for insurance covering the goods in transit.
  • The seller’s delivery obligation is fulfilled when goods are delivered to the carrier or the buyer’s representative at the agreed location.
  • From that moment, the buyer assumes risk for loss or damage, even though the seller has paid transport and insurance costs.

Example: A manufacturer in South Korea ships tablets to a retailer in the U.S. under “CIP New York.” The manufacturer pays freight and the minimum insurance to deliver the shipment to the seller-selected carrier at the agreed point in New York. Once delivered to that carrier or the retailer’s appointee, the buyer assumes risk.

Insurance requirements and buyer responsibilities

  • CIP requires the seller to obtain cargo insurance for at least 110% of the contract value, typically on Institute Cargo Clauses (or equivalent) covering the minimum risks.
  • This minimum coverage may not protect against all risks. If the buyer wants broader or higher-value insurance, they must usually arrange and pay for it, unless otherwise negotiated.
  • Buyers should consider additional insurance for the portion of the journey not covered by CIP (for example, from the first destination to final facilities) or for broader “all risks” protection.

Scope and transport modes

  • CIP applies to any mode of transport, including multimodal shipments (road, rail, sea, inland waterway, air).
  • CIP covers movement from the seller’s premises to the named first destination agreed in the contract. The buyer is responsible for subsequent inland carriage beyond that point unless the contract states otherwise.

CIP versus CIF

  • Both CIP and CIF (Cost, Insurance and Freight) place freight and insurance obligations on the seller, but they differ in common use and insurance scope:
  • CIF is traditionally used for sea and inland waterway transport.
  • CIP applies to any transport mode, including multimodal.
  • Under CIP, the seller must insure to 110% of the contract value. Under CIF, insurance requirements and practices differ and are typically aligned with maritime trade norms.

Incoterms context and brief history

  • Incoterms are standardized international trade terms published by the International Chamber of Commerce (ICC) that allocate costs, risks and responsibilities between sellers and buyers.
  • Incoterms were first published in 1936 and have been updated periodically. CIP was introduced into the Incoterms rules in 1980 and remains part of current rules for international sales.

Key takeaways

  • CIP: seller pays freight and minimum insurance to a named destination; buyer assumes risk once goods are delivered to the carrier or buyer’s representative.
  • Seller must insure for at least 110% of the contract value.
  • CIP covers any transport mode and typically only to the first named destination; additional coverage or transport beyond that point is the buyer’s responsibility unless negotiated.
  • Buyers concerned about gaps in coverage should negotiate higher insurance or procure supplemental insurance.

Bottom line

CIP is a widely used Incoterm that shifts transport and minimum insurance costs to the seller while transferring risk to the buyer at the point of delivery to the carrier. Parties should clearly specify the named destination, confirm the scope of insurance provided, and negotiate additional coverage if needed.