Incoterms or International Business Terms are generalized rules identified explicitly on the global stage to help buyers and sellers understand obligations and expenses amidst transactions. Of all these Incoterms, CIP – Carriage and Insurance Paid To Incoterm plays a significant role in flow of goods transportation and symmetry of adequate insurance on the cargos. In this guide, you will learn everything that there is to know about CIP delivery terms to facilitate your understanding of international shipping contracts.
What Are CIP Delivery Terms?
CIP delivery term is one of the Incoterm that defines that who takes the full responsibility for transport cost and insurance risk during the transportation of goods. CIP requires the seller to make arrangements for carriage and for payment of insurance up to a particular point of destination which common is the buyer’s country.

In international business sales, all risk insurance plan and cost are shouldered by the seller, the risk of loss or damage to the goods passes from the seller to the buyer as soon as the goods are handed over to the first carrier. This means that Insurance is compulsory with CIP unlike with other delivery terms such as the EXW or the FOB.
How Does CIP Work?
The CIP term specifies a few key responsibilities for the buyer and also means that the seller must:
- Seller’s Responsibilities:
- Give the products to either the first shipped via the first transporter or any other shipping agent.
- Agree on the delivery point and then ensure you offer to pay for the transport and insurance of the products up to the agreed delivery point.
- As certain that the insurance policy provides a basic form of coverage, which, based on the Institute Cargo Clauses (C).
- Buyer’s Responsibilities:
- Shippers should bear the risk once the goods are in the hands of the carrier.
- Perform import formalities, customs formalities, if there are any taxes within the country of import.
- oversee all risks and costs for all venues besides the prescribed destination under CIP.
In practice, these responsibilities prevent misunderstanding in insurance payment, customs clearance and transportation as well as sale of the products by defining the roles of each party.
Insurance Paid Under CIP: What It Means

One of the peculiarities of the CIP Incoterm is insurance – it is paid by the seller. While other terms like CFR for example stands for Cost and Freight that involve insurance as an added feature, CIP incoterm carriage comes with insurance that the seller is supposed to obtain minimal insurance for the shipment of or transporting the goods in question.
Still, one has to mention that the cargo insurance is needed is most often Minima (for instance, Institute Cargo Clauses C), unless it is agreed on by the buyer and the seller. Haulers with unsophisticated insurance coverage might add extra coverage for mercantile interest of sensitive or valuable freight transport by buyers.
Here’s an example: The rules are if a seller uses CIP to export electronics valued at $50,000, the seller is required to obtain insurance for the consignment. The buyer may need some additional insurance protection; he/she may ask for it, at his/her own expense, or incorporate it in the contract.
How Insurance Costs Impact the Total Price
Being that carriage costs and insurance, as well as insurance paid are within the seller’s obligations under CIP, such costs directly contribute to the cost of the goods. It’s important for both parties to understand that the final quoted price includes freight costs:
- Transportation cost up to the agreed upon destination.
- Insurance costs as far as the value of the goods shipped, received, or in transit.
On the financial side, such buyer gains stability offered by the CIP arrangement because they have the final delivery price agreed upon location and buyers do not need to organize their own freight and insurance costs. However, the sellers need to cater for insurance costs and transportation charges which may add up to their cost line. Consequently, some of the sellers incorporate these costs in the product price when setting affordable prices to increase their profits.
Carriage and Insurance Paid to (CIP) vs Other Incoterms

Therefore, it is important when contracting to be able to differentiate between CIP and the other delivery terms. Let’s compare CIP with a few similar Incoterms:
- CIP vs. CIF (Cost, Insurance, and Freight):
- Then both of the terms have insurance in which the seller has to pay for the insurance cost. However, whereas CIP applies to all modes of transport, CIF only applies to sea borne transport.
- CIP vs. FCA (Free Carrier):
- While under FCA, the buyer is also expected to clear the transportation and insurance costs, CIP expect the seller to do the same until the named destination point.
- CIP vs. DAP (Delivered at Place):
- DAP puts the burden of delivering the goods at the buyer’s door step but does not for insurance. CIP makes certain that the seller keeps insurance till the destination.
That between these Incoterms depends on the mode named of transport place, type of goods and whether the buyer or the seller prefers to take up insurance to cover the risks.
Benefits of Using CIP Delivery Terms
- Predictable Costs:
- Since carriage and insurance are also paid during the selling process by the seller, cost are more certain and constant for the buyers.
- Reduced Risk for Buyers:
- While transferred in the transition from the seller to the buyer, the sellers that offer basic insurance coverage will minimize the buyer’s potential large losses.
- Multi-modal Flexibility:
- CIP can be applied on air, road, rail and sea transporta1ion facilities. This flexibility makes it as suitable product in the more complicated international trade legal frameworks.
- Simplified Process for Buyers:
- Purchasers are free from the headache of finding insurance and other arrangements until the agreed-upon place in the delivery of the goods is reached.
Challenges and Limitations of CIP Delivery Terms

CIP terms have numerous advantages but they cannot always be used in certain trades. Here are a few potential challenges:
- Minimum Insurance Coverage:
- The default coverage does not cover high risk or breakable merchandise fully. Instead, buyers have to pay higher insurance levels, should the need arise, which leads to cost elevation.
- Risk Transfer Timing:
- Since the risk of loss reverts to the buyer at the first carrier transfer, the buyers must be informed that despite not organizing the transportation, any mishaps on transit are their responsibility from then onwards.
- Additional Costs Beyond the Destination:
- After the goods reach the delivered point, all costs associated with customs, duties, and local transportation are borne by the buyers which again creates problems of cost control.
Practical Tips for Using CIP Delivery Terms Effectively

- Clarify Insurance Requirements in Advance:
- See that guests are aware of the insurance level required before they are given access to your site. If the higher coverage is required it must be mentioned in the contract to avoid many confusions.
- Monitor the Risk Transfer Point:
- It should shift clearly from the seller to the buyer at least at the time that the goods are delivered to the first carrier.
- Consider Multi-modal Transport Needs:
- CIP is particularly suitable where the mode of transport needed is not continuous. Select carriers that are credible and with the capacity to transport the type or kind of cargo being conveyed.
- Factor in Customs and Local Transport Costs:
- Purchases are expected to factor in supplementary costs like duties and transportation after the delivery point as per the rightful contract terms entail.
Conclusion
This paper has identified that the CIP delivery terms provide a reliable guideline for international business due to the fact that it delineates the transportation obligations and insurance expenses of the buyers as well as the sellers accurately. This arrangement empowers the sellers to ensure that carriage and insurance paid to and at the first stipulated place and final destination are in place which will ensure the buyers. Nonetheless, risk is transferred at the first carrier; buyers need to be careful during transit.
CIP is often used interchangeably to other Incoterms and must be understood in terms of its specificities and use, its bonus in the all risk insurance coverage, its drawbacks such as the minimum required insurance coverage and post-delivery costs. In its proper implementation, CIP can easily and effectively eliminate barriers to trade and create a smooth interchange of services between two or more countries.