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CIF, or Cost, Insurance and Freight, is the term buyers often prefer because the price includes getting the goods to their port, insured. What surprises many first-time traders is that under CIF the risk still passes to the buyer at the port of loading, not at the destination.
This short guide explains how CIF works under the ICC's Incoterms 2020 rules, what insurance the seller must actually provide, and how CIF shapes the documents your bank will ask for.
Under CIF, the seller contracts and pays for carriage to the named port of destination, for example "CIF Lagos" or "CIF Qingdao," and buys cargo insurance for the buyer's benefit. The seller delivers when the goods are on board the vessel at the port of shipment, and that is when the risk passes to the buyer, even though the seller has paid the freight all the way to destination.
In other words, CIF splits cost and risk at two different points. The seller's cost runs to the destination port. The buyer's risk starts at the loading port. Like FOB, CIF is reserved for sea and inland waterway transport under Incoterms 2020.
| Responsibility | Seller | Buyer |
|---|---|---|
| Export clearance | Yes | No |
| Contracting the vessel and paying freight to destination | Yes | No |
| Cargo insurance | Yes, at minimum cover, for the buyer's benefit | Should consider extra cover |
| Risk of loss | Until the goods are on board at the port of shipment | From the moment the goods are on board |
| Unloading costs at destination | Only if included in the freight contract | Otherwise yes |
| Import clearance and duties | No | Yes |
Under Incoterms 2020, the ICC confirms that CIF's default insurance remains Institute Cargo Clauses (C), the most limited standard cover, unless the parties agree otherwise. By contrast, CIP, the equivalent term for any mode of transport, now requires cover at the level of Institute Cargo Clauses (A).
Clauses (C) cover major casualties such as fire, sinking or collision, but not many everyday causes of loss. A buyer or a financing bank that assumes "CIF means fully insured" can be badly exposed. If you need wider cover, write it into the sale contract and the letter of credit. Our trade credit insurance guide covers the separate question of insuring against buyer non-payment.
Risk passes before the voyage starts. If the vessel sinks after loading, the CIF buyer still owes the price and must claim on the insurance policy. That is why the insurance terms, the insured value and the claims-payable location matter as much as the freight.
Documents. A CIF seller presenting under a letter of credit usually needs a clean, on-board bill of lading marked freight prepaid, plus an insurance policy or certificate. Under UCP 600, the insurance must normally cover at least 110% of the CIF value unless the credit says otherwise, and must be dated no later than the shipment date.
For buyers and importers. CIF is simpler to manage, since the seller handles freight and insurance. The trade-off is less control over the vessel, the schedule and the insurer, and a freight cost built into the price that you cannot see.
For traders. Selling CIF while buying FOB lets a trader control the freight leg and capture a freight margin. Lenders will want to see the charter party, freight costs and insurance arrangements as part of the deal file. See also our guides to DAP and FCA.
Financely is a debt advisory and arranging firm. We don't lend. We structure trade transactions so the Incoterms, the insurance, the documents and the financing work together, from letters of credit to structured commodity finance, and arrange the financing with lenders from our network of more than 12,700 verified capital providers.
Tell us about your trade and we will send you an estimate showing the scope of work and the fee to structure and arrange the financing. You decide whether to proceed once you have seen it.
When the goods are on board the vessel at the port of shipment, even though the seller pays freight and insurance to the destination port.
Under Incoterms 2020, minimum cover under Institute Cargo Clauses (C), unless the parties agree a higher level. Buyers who need broader protection should require it in the contract or arrange it themselves.
Under CFR, Cost and Freight, the seller pays freight to the destination port but does not buy insurance. Under CIF, the seller also insures the cargo for the buyer's benefit. Risk passes at loading under both.
CIF is for sea and inland waterway transport and requires minimum Clauses (C) cover by default. CIP works for any mode of transport, including containers, and requires Clauses (A) level cover under Incoterms 2020.
This article is for general information only and does not constitute legal or insurance advice. Incoterms rules apply only when incorporated into the sale contract, and the contract can vary them. Financely is an advisory and arranging firm, not a lender or broker-dealer. Any financing is subject to lender underwriting, due diligence, credit approval, documentation and conditions precedent, and no outcome or closing timeline is guaranteed.
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