Ships encounter storms, containers fall overboard, cargo gets wet, dropped, or stolen. Carriers' liability for loss or damage is limited by international conventions and their contract terms — often far below the value of the goods. Cargo insurance fills that gap. For exporters, knowing who should insure — and how much cover is needed — protects both the goods and the payment.
Who Needs to Insure?
It depends on the Incoterm, because the Incoterm decides who bears the risk at each stage:
- CIF and CIP: the seller must buy insurance for the buyer's benefit. Under Incoterms 2020, CIF requires at least minimum cover (Institute Cargo Clauses C) and CIP requires higher cover (Institute Cargo Clauses A), unless the parties agree otherwise.
- FOB, FCA, CFR, CPT: there is no obligation on either party to insure, but the party bearing risk — the buyer during the main voyage — normally will.
- DAP, DPU, DDP: the seller bears risk until delivery at destination, so the seller should insure.
Even when the buyer insures, you may want cover for your own risk period — for example inland transport to the port under FOB. See Incoterms 2020 explained.
Institute Cargo Clauses
Many marine cargo policies use the Institute Cargo Clauses (ICC), published in the London market:
- ICC (A): the broadest cover — "all risks" subject to listed exclusions
- ICC (B): named perils, including fire, sinking, collision, earthquake, washing overboard, and entry of sea or river water
- ICC (C): the most limited named perils — major casualties such as fire, explosion, sinking, collision, and general average
ICC (C) does not cover many common causes of damage, such as theft or rough handling. Buyers often expect ICC (A) cover.
Common Exclusions
Even ICC (A) excludes certain losses, typically including:
- Insufficient or unsuitable packing
- Inherent vice — the nature of the goods themselves, such as natural deterioration
- Delay
- Wilful misconduct of the insured
- Ordinary wear, leakage, or loss in weight or volume
- War and strikes, unless added by separate clauses
Good export packaging is therefore part of your protection.
How Much to Insure
It is common practice to insure for 110% of the CIF or CIP value — the extra 10% covers expected profit and additional costs. Incoterms 2020 also uses 110% as the minimum insured amount for CIF and CIP. Letters of credit often specify the insured amount; follow them exactly.
General Average
General average is an old maritime principle: if part of a ship's cargo or the ship itself is sacrificed or expenses are incurred to save the voyage — for example jettisoning cargo in a storm or salvage after a fire — all cargo owners share the cost in proportion to their cargo's value. Even undamaged cargo can be held until the owner provides security for their share. Cargo insurance usually covers general average contributions, which is another reason to insure.
💡 Open cover for regular shippers
If you ship regularly, an annual open cover policy automatically insures each shipment within agreed limits. It saves time and ensures nothing ships uninsured because someone forgot.
Making a Claim
If goods arrive damaged or short:
- Note the damage on the delivery receipt before signing — "received damaged" or "cartons wet".
- Take photographs of containers, seals, packaging, and goods.
- Notify the insurer and carrier promptly, within the time limits in your policy.
- Arrange a survey if required.
- Keep all documents — invoice, packing list, bill of lading, insurance certificate, survey report.
- Preserve damaged goods until the insurer agrees they can be disposed of.
Claims fail most often because of late notification, missing documents, or poor packaging.
Insurance Under Letters of Credit
When an LC requires insurance, it usually specifies the document type (policy or certificate), coverage, insured amount, currency, and where claims are payable. The insurance document must be dated no later than the shipment date. Check these details carefully — they are common sources of discrepancies. See letter of credit explained.
Frequently Asked Questions
Is cargo insurance mandatory for export?
It is only contractually required under certain Incoterms, such as CIF and CIP, or when required by a letter of credit. But it is strongly recommended for whoever bears the risk of loss during transport.
What is the difference between ICC A and ICC C?
ICC A provides broad all-risks cover subject to exclusions. ICC C covers only a limited list of major perils such as fire, sinking, collision, and general average.
How much cargo insurance should I buy?
Commonly 110% of the CIF or CIP value, which is also the minimum amount required under Incoterms 2020 for CIF and CIP.
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