The 110% insurance rule: how much cover CIF and CIP shipments need
Updated
Why cargo insurance is usually 110% of the invoice value, where the rule comes from, and how to check an insurance certificate before you present it.
Where the 110% comes from
Two sets of rules lead to the same number:
- Incoterms® 2020 — under CIF and CIP the seller must buy insurance covering at least the price in the contract plus 10% (110%), in the currency of the contract. CIF requires at minimum Institute Cargo Clauses (C); CIP requires Institute Cargo Clauses (A), unless the parties agree otherwise.
- UCP 600 article 28(f)(ii) — when a letter of credit does not state the amount of cover, the insurance document must cover at least 110% of the CIF or CIP value of the goods.
The extra 10% is meant to cover the buyer's expected profit and costs if the goods are lost.
Worked example
An invoice is issued for USD 48,250.00 CIF Long Beach.
| Amount | |
|---|---|
| CIF invoice value | USD 48,250.00 |
| Minimum cover (110%) | USD 53,075.00 |
| Certificate shows USD 50,000.00 | Under-insured: a discrepancy |
Insurers often round up, and covering USD 53,100 is fine. Covering less than 110% is not, unless the credit specifies a different amount.
When the CIF or CIP value is not shown
If the CIF or CIP value cannot be determined from the documents, article 28(f)(ii) bases the cover on the greater of the amount for which honour or negotiation is requested and the gross value of the goods shown on the invoice.
Other checks on the insurance document
- Currency — the same as the credit (article 28(f)(i)).
- Date — no later than the date of shipment, unless the document shows that cover is effective from a date not later than shipment (article 28(e)).
- Route — covers at least from the place of taking in charge or shipment to the place of discharge or final destination stated in the credit (article 28(f)(iii)).
- Type of document — an insurance policy is acceptable instead of a certificate; a cover note is not (article 28(c) and (d)).
- Risks — as the credit requires. A credit should name the risks; with vague terms such as “usual risks” the document is accepted whatever risks it leaves out (article 28(g)).
- References — any the credit or buyer asks for, such as the invoice or L/C number.
Who insures under other Incoterms rules
Under FCA, FOB, CFR and CPT the seller has no obligation to insure the main carriage; the buyer usually arranges cover. Under DAP, DPU and DDP the seller bears the risk to the destination and normally insures for its own protection, but the rules do not oblige it to. The 110% rule matters when a document must show cover — mainly CIF and CIP, and letters of credit.
How LADEO helps
When you upload an insurance certificate, LADEO reads the insured amount and currency and compares them with the invoice. A different currency, cover below 110% of the CIF or CIP value, or a missing invoice reference is flagged before you present the documents. See also the L/C document checklist.
This guide is general information, not legal, insurance or banking advice. The terms of your contract and credit prevail.