CIF (Cost, Insurance, and Freight) and CIP (Carriage and Insurance Paid To) are both Incoterms rules where the seller pays for freight and insurance, but they differ in three important ways: the modes of transport they cover, the level of insurance the seller must provide, and where risk transfers to the buyer. CIF applies only to sea and inland waterway shipments, while CIP works for any mode of transport, including air, rail, truck, or combinations of several. Under the current Incoterms 2020 rules published by the International Chamber of Commerce, CIP also requires significantly more insurance coverage than CIF.
Transport Modes Each Term Covers
CIF is restricted to maritime carriage or inland waterway transportation. The seller arranges and pays for ocean freight to the named port of destination. If your goods travel exclusively by ship from one port to another, CIF fits the transaction.
CIP has no transport restriction. The seller must contract and pay for carriage to the agreed place of destination, whether that destination is an inland warehouse, an airport, a rail terminal, or a seaport. This makes CIP the natural choice when a shipment involves multiple legs, such as a truck to the port, a container ship across the ocean, and then rail or truck to the buyer’s facility. It also applies when goods move entirely by air or land.
Insurance Coverage Requirements
This is the most consequential difference between the two terms, and it changed with the 2020 revision of the Incoterms rules.
Under CIF, the seller is required to obtain insurance at a minimum level compliant with the Institute Cargo Clauses (C). Clause C is the narrowest of the three standard marine cargo insurance tiers. It covers major casualties like vessel sinking, fire, or collision, but it does not cover theft, water damage from waves washing over the deck, or many other risks that can damage goods in transit. The parties can agree to a higher level, but Clause C is the default.
Under CIP, the seller must obtain insurance compliant with the Institute Cargo Clauses (A), which is the broadest tier. Clause A is “all risks” coverage, meaning it insures against every cause of loss or damage except for specifically listed exclusions (such as war, inherent vice of the goods, or willful misconduct). This gives the buyer substantially more protection without having to negotiate for it.
In practical terms, if you are the buyer and your contract says CIF, you may want to purchase additional insurance on your own to fill the gaps left by Clause C coverage. If the contract says CIP, the seller’s insurance obligation already covers most scenarios.
Where Risk Passes to the Buyer
Both CIF and CIP share a feature that often surprises people new to international trade: the seller pays for freight and insurance all the way to the destination, but risk transfers to the buyer much earlier, back in the country of origin.
With CIF, risk passes when the goods are loaded onto the vessel at the port of departure. Once the cargo crosses the ship’s rail at the origin port, any loss or damage during the voyage is the buyer’s problem, even though the seller arranged and paid for the shipping and insurance. This transfer point is sometimes called the “FOB point.”
With CIP, risk passes when the goods are handed over to the first carrier, which is typically at or near the seller’s premises in the country of origin. If the seller loads a container onto a truck that will drive to a port and then be loaded onto a ship, risk transfers the moment that truck takes possession. Everything after that point is the buyer’s risk, covered by the insurance the seller purchased.
In both cases, the insurance the seller buys is meant to protect the buyer’s interest during the portion of the journey where the buyer carries the risk but hasn’t yet received the goods.
Cost Breakdown for Buyer and Seller
The cost structure is similar for both terms. The seller’s commercial invoice includes the cost of the goods, freight charges, insurance premiums, export clearance costs, and documentation. The buyer is responsible for import duties, import clearance, and any costs that arise after the goods arrive at the named destination.
One difference worth noting: because CIF applies only to port-to-port shipments, the named destination is always a port. The buyer handles and pays for moving goods from the destination port to their final location. With CIP, the named destination can be an inland point, so the seller’s freight obligation can extend further into the buyer’s country. This means you can negotiate a CIP contract where the seller covers transportation all the way to a warehouse or distribution center, not just to a port.
When to Use Each Term
Use CIF when your shipment is a straightforward port-to-port ocean shipment, particularly for bulk commodities like oil, grain, or minerals that are loaded directly into a vessel’s hold rather than packed in containers. CIF has been the standard term in many commodity trades for decades, and it remains common in those industries.
Use CIP when goods travel in containers, move by air, go by rail or truck, or involve any combination of transport modes. Containerized goods are typically handed to a carrier at an inland depot or the seller’s warehouse before they ever reach a port, which means the CIF delivery mechanism (loading onto a vessel) doesn’t match how the shipment actually works. CIP also makes sense when you want the seller’s insurance to cover more risks, since the Clause A requirement is built into the term by default.
If you are a buyer comparing two quotes, one CIF and one CIP, keep in mind that the CIP quote may look higher because it includes broader insurance. But you would likely need to buy supplemental coverage under a CIF contract anyway, which narrows or eliminates the real cost difference.