Who should buy the cargo insurance under each Incoterm? CIF, FOB, EXW and DAP

What an Incoterm actually allocates

So the right question isn't "who must buy the insurance?" but "who loses the money if the cargo is damaged on this leg?". The Incoterm answers exactly that, and whoever it names is the party that needs cover.

An Incoterm splits three things between seller and buyer: who pays the freight, where risk transfers, and who handles export and import formalities. It does not allocate insurance, except under CIF and CIP.

The most expensive misconception in international trade is assuming that "whoever pays the freight carries the risk". Under CFR, for example, the seller pays freight to the destination port, but risk passed to the buyer the moment the goods were loaded on board at origin. The seller is paying for the voyage of cargo that is no longer their problem.

Rule by rule: who bears the risk and who should insure

• EXW — Risk passes to the buyer at: The seller's warehouse, before loading; Is anyone required to insure?: No; Who should insure in practice: Buyer, from the very first meter
• FCA — Risk passes to the buyer at: Delivery to the nominated carrier; Is anyone required to insure?: No; Who should insure in practice: Buyer
• FAS / FOB — Risk passes to the buyer at: Alongside the vessel / on loading on board; Is anyone required to insure?: No; Who should insure in practice: Buyer, but needs the pre-carriage leg too
• CFR / CPT — Risk passes to the buyer at: On loading on board / delivery to first carrier; Is anyone required to insure?: No; Who should insure in practice: Buyer (even though the seller pays freight)
• CIF — Risk passes to the buyer at: On loading on board; Is anyone required to insure?: Yes, the seller (minimum cover); Who should insure in practice: Seller is obliged; buyer usually needs more
• CIP — Risk passes to the buyer at: Delivery to the first carrier; Is anyone required to insure?: Yes, the seller (broad cover); Who should insure in practice: Seller
• DAP / DPU — Risk passes to the buyer at: At destination, on being made available or unloaded; Is anyone required to insure?: No; Who should insure in practice: Seller, who bears risk the whole way
• DDP — Risk passes to the buyer at: At destination, import cleared; Is anyone required to insure?: No; Who should insure in practice: Seller

The rule that summarizes the table: under the "E", "F" and "C" terms, risk during the main voyage sits with the buyer — CIF and CIP included, where the seller buys the insurance but for the buyer's benefit. Under the "D" terms, it sits with the seller.

The three gaps where money is lost

1. CIF does not mean "properly insured". CIF requires the seller to buy cover, but only the market's minimum cover: a named-perils set that leaves out much of what actually happens — wetting, theft, handling damage, losses with no major casualty behind them. On top of that, the seller's obligation ends at the agreed destination port, not at the buyer's warehouse: the inland leg from port to warehouse — where much of the region's theft and handling damage occurs — falls outside.

And there is a third layer almost nobody checks: whose name the certificate is in and where it is adjusted. It is issued by the seller, in the seller's language, under the seller's law, adjusted in the seller's country. Claiming from Lima or Santiago against an insurer that answers in another jurisdiction, through an intermediary who doesn't know you, makes the claim longer and harder exactly when speed matters most. That is why many buyers place their own broad cover in parallel, and they are right to.

It is also worth checking the paperwork: CFR and CIF differ by one letter, and buyers frequently believe they bought CIF when the invoice says CFR — where there is no insurance obligation at all.

2. FOB leaves the origin leg orphaned. Under FOB the buyer's risk starts once the cargo is on board. But inland transport to the port, prior storage and consolidation all happen before that point, at the seller's risk — and the seller usually insured nothing, because they "sold FOB". When the container arrives damaged and nobody can say on which leg it happened, the argument is unwinnable.

3. EXW hands the buyer a risk they cannot control. Under EXW the buyer assumes risk from the seller's warehouse, in a country where they have no operation, did not choose the carrier and never saw the loading. It is the Incoterm that most needs warehouse-to-warehouse cover and the one that least often has it.

Insurable interest: the rule that decides whether you get paid

Cargo insurance pays the party that bore the risk at the exact moment of the loss. That is insurable interest, and it is why the Incoterm matters so much: if the damage occurred before the transfer point and the buyer claims, there is nothing to collect; if it occurred after and the seller claims, likewise.

Two practical consequences:

• The policy must be in the name of the party bearing the risk, not the party that arranged the shipment.
• The transfer point must be written down, on the invoice and on the shipping instruction. A bare "FOB" with no named port is an argument waiting to happen.

Why warehouse-to-warehouse cover closes most of the gaps

Most of these gaps exist because cover starts or ends at a different point from where commercial risk sits. Warehouse-to-warehouse cover — from the origin warehouse to the destination warehouse, including loading and unloading — removes the breaks in cover between legs. What does not change is the insurable-interest rule: the certificate must be in the name of whoever bears the risk on each leg, and there the Incoterm still rules.

At Proteus Cargo, cover operates warehouse to warehouse, on any route worldwide and with no deductibles as the general rule of the program, backed by world-class insurers and reinsurers in the markets of London, Germany and France. The insured value and the exact terms for each shipment are confirmed when the certificate is issued.

What a freight forwarder or customs broker does with this

The Incoterm is on the commercial invoice and the shipping instruction that already pass through your hands. It is, literally, a sales filter already sitting on your desk:

• 1. EXW, FCA, FOB, CFR or CPT shipments → your buying client bears the risk and is almost never insured. The easiest conversation there is.
• 2. CIF shipments → your client holds minimum cover they probably don't understand. Offering broad cover on the same shipment is a concrete upgrade, not a new sale.
• 3. DAP, DPU or DDP shipments → your selling client bears the risk for the entire voyage, including unloading at destination.
• 4. Your exporting client's FOB sales → the leg to the port is their risk, and almost nobody insures it.

With the Proteus Cargo Partner Program you offer that cover inside your own service, relying on a policy that is already underwritten and active: no capital, no insurance infrastructure and no technical expertise required. We provide the product, the technology and the claims handling; you bring the book you already serve. We operate in Chile, Peru, Mexico, Colombia, Argentina, Paraguay and Ecuador, and insure more than 12,000 shipments a year.

In one line

The Incoterm doesn't decide whether cargo should be insured: it decides who is exposed. And in nine cases out of eleven, the answer is someone nobody obliged to act.

Want to review which Incoterms your book uses and where the uninsured shipments are? Book a 30-minute meeting, no strings attached.