Glossary:Cost, insurance and freight (CIF) (2024)

FAQs

What is the cost insurance and freight value of CIF? ›

Cost, insurance, and freight (CIF) is an international shipping agreement, which represents the charges paid by a seller to cover the costs, insurance, and freight of a buyer's order while the cargo is in transit. Cost, insurance, and freight only applies to goods transported via a waterway, sea, or ocean.

To calculate CIF accurately, one must grasp three fundamental components: the cost of the goods, the expenses associated with insuring the goods, and the freight or shipping charges. The CIF value is calculated by the formula CIF = C+I+F.

Cost, Insurance, and Freight (CIF)

The term “carriage and insurance paid to (CIP)” signifies that the seller will pay freight and insurance when sending goods to a buyer's representative at a mutually agreeable location. The seller must insure the goods being sent for 110% of their contract value.

The cargo insurance premium on a single shipment is typically calculated as the insured value times the policy rate. And what is insured value? The simplest method to calculate insured value is to add the commercial invoice value of the goods to the cost of freight and add ten percent to cover additional expense.

Cost, Insurance and Freight (CIF) is an Incoterm rule that is identical to the CFR Incoterm rule except in one aspect: insurance. Even though the risk transfers to the seller upon loading the goods on board the vessel, in CIF, the seller is obliged to take out insurance cover for the buyer's risk.

There are different types of freight insurance policies including cargo insurance, marine insurance, shipping insurance, transport insurance, and transit insurance. All these policies cover merchandise and goods against loss or damage during transit from one location to another.

CIP (Carriage And Insurance Paid To) means that the seller is responsible for delivery, delivery costs, and insurance costs of the goods until they are transferred to the first carrier tasked with transporting the goods.

Who will bear insurance in CIP? ›

Under a CIP incoterm, the exporter is liable for freight and insurance coverage and costs to ship the goods from point A to point B, from where the first carrier takes over to load and ship the goods.

That's because CIF is generally used in shipments of lower-value goods than CIP. In both cases—CIF and CIP—the insurance should cover, at a minimum, 110% of the value of the goods as provided in the sales contract. The insurance should cover the goods at least to the point of delivery.

The cost, insurance and freight (CIF) price is the price of a good delivered at the frontier of the importing country, or the price of a service delivered to a resident, before the payment of any import duties or other taxes on imports or trade and transport margins within the country.

Under CIP, the sellers are legally required to insure the goods for 110% of the Total Declared Value . Some buyers may feel that 110% coverage is not enough protection. If so, buyers can take it up with the seller and ask for more coverage.

Freight Insurance Cost

On average, freight insurance premiums cost around 0.3% to 0.5% of the commercial invoice value of the goods. But costs can vary based on factors like: Type and value of goods being shipped. Mode of transport (air, sea, road, rail)

Freight Rate, the cost of transporting goods, is reflective of a number of factors aside from normal transportation costs. The main determining factors of freight rate are: mode of transportation (truck, ship, train, air craft), weight, size, distance, points of pickup and delivery, and the actual goods being shipped.