Incoterms 2026: Who Must Insure the Cargo?

What Incoterms are and why they matter

Incoterms (International Commercial Terms) are a set of standardized three-letter codes published by the International Chamber of Commerce (ICC) in Paris. Their purpose is to define, with no room for ambiguity, three critical responsibilities in any international sale of goods: who pays for transport, where physical risk passes from seller to buyer, and who must obtain — and pay for — cargo insurance. They do not replace the commercial contract, the bill of lading, or the customs declaration; rather, they sit on top of them as a universal shorthand that customs authorities, banks, freight forwarders, and insurers across every continent recognize on sight.

For Latin American importers and exporters, the choice of Incoterm has direct financial consequences. It determines whether the FOB or CIF value is declared to SUNAT, DIAN, SAT, or SNA, which party suffers the loss if a container is damaged in a transshipment in Balboa or Cartagena, and whether the insurance certificate presented at clearance is sufficient under local regulation. A poorly negotiated Incoterm shifts risk silently — and in international trade, silence almost always favors the more experienced counterparty.

What changes in Incoterms 2026

Incoterms 2020 remain the version officially in force during the current revision cycle, but the ICC working group is already consulting the market on the next edition. Several adjustments are expected for the upcoming refresh, all of them aligned with the operational reality importers and exporters are already living:

• Stronger emphasis on insurance transparency: the gap between the minimum coverage required under CIF (ICC C) and the broader coverage required under CIP (ICC A) is being reviewed because it continues to cause disputes between sellers and buyers.
• Better treatment of containerized cargo: maritime-only rules (FAS, FOB, CFR, CIF) keep being misused for containers that are actually handed over at an inland terminal. Future guidance pushes traders toward the multimodal family (FCA, CPT, CIP, DAP, DPU, DDP).
• Digital documentation: electronic bills of lading, digital insurance certificates, and platform-issued evidence are gaining explicit recognition.
• Sustainability and security: clearer allocation of responsibilities related to security filings (ISF, ENS) and ESG-related transport requirements.

Until the ICC formally publishes a new edition, your contracts should explicitly state "Incoterms 2020" to avoid interpretation gaps. In this article we treat "Incoterms 2026" as the current rule set traders are working with in 2026, which in practice still means the 2020 text plus the operational best practices the market has consolidated since then.

The 11 Incoterms at a glance

The eleven rules are divided into two families: seven multimodal terms (valid for any mode of transport, including containers) and four maritime-only terms (designed for bulk cargo loaded directly onto a vessel). The table below summarizes, for each Incoterm, the transport mode it applies to, where risk transfers from seller to buyer, whether insurance is contractually mandatory, and who normally pays for it.

Incoterm	Mode	Risk transfer	Insurance mandatory?	Who pays
EXW Ex Works	Any	Seller's premises	No	Buyer (optional)
FCA Free Carrier	Any	Delivery to carrier	No	Buyer (optional)
CPT Carriage Paid To	Any	Delivery to first carrier	No	Buyer (optional)
CIP Carriage and Insurance Paid To	Any	Delivery to first carrier	Yes (ICC A)	Seller
DAP Delivered At Place	Any	Named destination	No	Seller (optional)
DPU Delivered at Place Unloaded	Any	Unloaded at destination	No	Seller (optional)
DDP Delivered Duty Paid	Any	Named destination, duties paid	No	Seller (optional)
FAS Free Alongside Ship	Sea	Alongside the vessel	No	Buyer (optional)
FOB Free On Board	Sea	On board the vessel	No	Buyer (optional)
CFR Cost and Freight	Sea	On board the vessel	No	Buyer (optional)
CIF Cost, Insurance and Freight	Sea	On board the vessel	Yes (ICC C min.)	Seller

Who must insure under each Incoterm

Only two of the eleven Incoterms — CIF and CIP — contractually oblige the seller to buy cargo insurance for the benefit of the buyer. In the other nine rules, insurance is optional and falls on whichever party bears the risk for that leg of the journey. The practical reading for an importer or exporter is straightforward:

• EXW, FCA, FAS, FOB, CFR, CPT: the buyer assumes the risk early in the journey, so the buyer should arrange the policy. Under FOB and CFR the seller pays the freight but no insurance is included — a frequent source of confusion.
• CIF, CIP: the seller must contract insurance and hand the certificate to the buyer. The buyer is the beneficiary but rarely chooses the insurer.
• DAP, DPU, DDP: the seller keeps the risk all the way to destination, so the seller should insure the shipment, even though no rule formally requires it.

Two practical points often missed by Latin American operators. First, "the seller pays the freight" (CFR, CPT) does not mean "the seller insures the cargo" — it does not. Second, under CIF/CIP the policy bought by the seller is almost always the cheapest available; if the buyer wants real protection, the buyer should consider taking out a complementary policy in its own name, sometimes called a "difference in conditions" cover.

CIF and CIP: the two rules with mandatory insurance

CIF (Cost, Insurance and Freight) and CIP (Carriage and Insurance Paid To) are the only Incoterms where the seller is legally bound to procure cargo insurance for the buyer. They look similar on paper but behave very differently in practice, and importers paying CIF or CIP from Asia, Europe, or the US should understand exactly what they are getting.

CIF vs CIP differences

The key differences between CIF and CIP under the current Incoterms revision are summarized below:

• Transport mode: CIF is restricted to ocean and inland waterway transport for non-containerized cargo. CIP works for any mode, including air, rail, road, and multimodal containerized shipments.
• Risk transfer point: under CIF, risk passes when the goods are loaded on board the vessel at the origin port. Under CIP, risk passes when the goods are handed to the first carrier (typically at an inland container yard or freight terminal).
• Minimum coverage required: this is the single biggest practical difference. Under CIF, the seller only has to buy ICC C, a basic clause that covers fire, sinking, derailment, and a handful of catastrophic events — and almost nothing else. Under CIP, the seller must buy ICC A, the broadest "all risks" coverage available in the London market.
• Currency and sum insured: in both cases the policy must be issued in the contract currency for at least 110% of the CIF/CIP value (the classic "imaginary profit" margin).

For practically any commercial cargo — electronics, machinery, automotive parts, pharmaceuticals, textiles, consumer goods — ICC C is dangerously narrow. A buyer importing CIF from China who suffers partial water damage, theft during transshipment, or rough handling at port will discover that the seller's policy does not respond. The pragmatic recommendation is always the same: if you are buying CIF, ask the seller to upgrade the coverage to ICC A and pay the marginal difference yourself, or — better — switch to CIP, FOB, or FCA and buy your own policy directly with a trusted broker.

Common mistakes Latin American traders make

After thousands of operations underwritten across the Pacific Alliance and MERCOSUR, the same recurring mistakes appear in every audit:

1. Using FOB for containerized cargo. FOB transfers risk when goods cross the ship's rail, yet containers spend hours or days at the terminal before loading. Anything that happens in that window is technically the seller's risk under FOB but practically impossible to claim. FCA is the correct multimodal equivalent.
2. Assuming the seller's CIF policy is enough. The seller bought ICC C — the bare minimum. Most damage events fall outside that scope.
3. Buying DDP from a foreign supplier with no LatAm presence. DDP shifts every duty and tax obligation to the seller, including local customs requirements the foreign exporter rarely understands. Shipments get stuck.
4. Insuring on FOB value instead of CIF + 10%. Underinsurance reduces every indemnity proportionally.
5. Not requesting the insurance certificate from the CIF/CIP seller in time. Without that document, SUNAT, DIAN, SAT, and SNA will challenge the customs valuation.

"FOB is the most misused Incoterm in Latin America. Importers think they are saving money on insurance, but they are actually buying risk they cannot quantify."

Recommendations for Latin American operators

For Latin American importers buying from Asia, Europe, or North America, the strongest position is almost always to negotiate on FCA or FOB terms and arrange your own cargo policy locally. This gives you three concrete advantages: you control the coverage level (always ICC A for commercial cargo), you control the insurer (an A+ rated company that responds in your jurisdiction), and you control the claim process in your own language and time zone. The documentation expected by SUNAT in Peru, DIAN in Colombia, SAT in Mexico, and SNA in Chile fits neatly with this setup: commercial invoice, B/L or AWB, packing list, and the locally issued insurance certificate. Platforms such as Cargo Insure Online (CIO) issue compliant certificates in PDF in minutes, valid for customs clearance across the region.

For Latin American exporters selling to the United States under the USMCA corridor or to the European Union, the typical preference is the opposite: sell FOB or FCA at the origin port and let the foreign buyer arrange their own insurance. This minimizes your liability the moment the container is on board or handed to the carrier, simplifies pricing, and avoids the operational burden of managing claims abroad. If the buyer insists on CIF or CIP, raise the price to absorb the cost of a real ICC A policy and never default to ICC C — the reputational cost of a rejected claim outweighs the premium savings several times over.

Whichever side of the trade you sit on, two principles never change: always quantify the real risk before signing the purchase order, and always issue the certificate in the name of the party with insurable interest at the moment of the loss.

Frequently asked questions

Is insurance mandatory in all Incoterms?

No. Only CIF and CIP make insurance contractually mandatory for the seller. The other nine Incoterms leave insurance as optional, although the party bearing the risk for each leg of the journey should always buy a policy. In practice, that means EXW, FCA, FAS, FOB, CFR, and CPT buyers should insure on their own, while DAP, DPU, and DDP sellers should insure until destination.

What is the difference between CIF and CIP regarding insurance?

Under CIF the seller only has to procure minimum coverage (ICC C), which protects against a short list of catastrophic events. Under CIP the seller must procure broad "all risks" coverage (ICC A). For any commercial cargo, CIP is far safer for the buyer. If you must trade on CIF, request an upgrade to ICC A in writing or contract a complementary policy in your own name.

Can I change the Incoterm after issuing the purchase order?

Yes, provided both parties agree in writing through an addendum, before the goods leave the seller's premises. Once the cargo is in transit, modifying the Incoterm becomes legally complex and operationally risky, because risk has already transferred and the corresponding insurance, freight, and customs documents have been issued under the original term.

If I buy CIF, do I still need my own cargo insurance?

Strongly recommended. The seller's CIF policy provides ICC C, which is insufficient for almost any real-world claim. Contracting a complementary "difference in conditions" policy in your own name, issued by a local insurer you trust, gives you the real protection the basic ICC C coverage lacks and ensures the indemnity flows directly to you in your jurisdiction.