Necessary agreements and legal considerations for cargo insurance in international trade


Learn about the necessary agreements and legal considerations that you need for cargo insurance in international trade

Cargo insurance is a hot topic in our current trade ecosystem. Week after week, news reports about shipping delays, accidents, and port congestion have become more frequent, highlighting the importance of insurance for those who deal with cargo and goods transportation in international trade. Without a doubt, cargo insurance is essential to a successful risk mitigation strategy for anyone who deals with the international transportation or trade of goods.

There are many important details that need to be covered when dealing with cargo insurance—defined as the transfer of risk to a third party, the insurance company, who takes on the risk for a fee called an insurance premium—and every stakeholder involved in the international trade transaction has insurance.

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For those who are aiming to obtain insurance, they must be aware of the process, which requires the following agreements by the insured and the insurer:

Setting the insurable value

The shipper can insure the cargo for the invoice value of the goods, plus freight and other charges. Most insurers offer insurance at 110 percent of the CIF value. The additional 10 percent is included as compensation for loss of profit. Generally, the beneficiary of the insurance policy determines which risks should be covered by insurance and negotiates to include that degree of coverage in the sales contract. It is rare to obtain insurance for more than 110 percent of the CIF value of the goods. The purpose of insurance is to compensate the insured for loss or damage, not to generate profit to the insured for the accident or event that led to the loss or damage.

Determining who takes out the policy

Usually, the terms of the sales agreement indicate which of the parties must obtain insurance. The Incoterms® 2020 rules for CIF or CIP require the seller to obtain cargo insurance to protect the buyer against the risk of loss. The rules require a policy that will allow the buyer to claim directly from the insurer, and requires the seller to provide the buyer with a copy of the insurance policy or other evidence of insurance coverage.


The remaining Incoterms®2020 rules leave the purchase of marine cargo insurance to the discretion of the buyer. Most insurance brokers are familiar with the requirements applicable to each trade term. The insurance ramifications of the Incoterms® rules being considered should be investigated before entering into a sales contract. Insurance can be quite costly, and in some cases it is unavailable.

Do you need a better understanding of Incoterms® 2020 definitions/rules and obligations? The Incoterms® 2020 online course, presented by FITT and the Canadian Chamber of Commerce (CCC), is designed to help international trade professionals gain an understanding of the latest edition of the Incoterms® rules (which came into effect on January 1, 2020).

Finalizing the policy

Once all details of the policy are determined and the insurance premium paid, an insurance policy is issued to the insured. The insurance policy is the contract between the insurer (i.e. the insurance company) and the insured (the shipper on the B/L or waybill) in which the insurer promises to pay the beneficiary (the person named in the insurance policy) for damage to, or loss of, the insured goods due to particular risks.

Legal Considerations

In terms of risk, it is also important to understand the protections that may be provided to international trading organizations based on the conventions, treaties and agreements to which countries are signatories. It is important to understand the geopolitical aspects of international trade in order to determine how international conventions, treaties and agreement may be beneficial.


The answers to the following questions will assist in this assessment:

  • What is being shipped?
  • What is the shipment’s final destination?
  • Who owns the land, air and sea en-route to the final destination?
  • Where is it stopping along the way to the final destination?
  • Are there passage rights, bans, boycotts, wars or trade restrictions on specific goods that could hinder the transportation of the goods being shipped?
  • What is the process if an accident or natural disaster destroys some or all of the goods?
  • What is the percentage of coverage, and where do the obligations of different stakeholders begin and end?
  • What is the notice period to file a claim or initiate liability litigation? How should the notice be given?
This article is an excerpt from the FITTskills Global Value Chain course. Keep your customers, clients and suppliers happy by transporting goods in a timely manner and in compliance with all regulatory requirements.

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About the author

Author: FITT Team

The Forum for International Trade Training (FITT) is the standards, certification and training body dedicated to providing international business training, resources and professional certification to individuals and businesses. Created by business for business, FITT’s international business training solutions are the standard of excellence for global trade professionals around the world.

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