What Is CIF? Meaning, Freight, Insurance, Risk Transfer, and CIF vs FOB & CIP
CIF is the most-used rule in trade, and the most misunderstood. That is because the seller pays freight and insurance to the destination port, yet the risk of cargo damage has already passed to the buyer at origin.
This guide looks at CIF alone. For a full comparison of all 11 rules, see the complete Incoterms 2020 guide.
What Is CIF?
CIF (Cost, Insurance and Freight) is the Incoterms rule under which the seller pays freight and cargo insurance to the destination port. It is for sea and inland-waterway transport only and belongs to Group C, where the seller pays the main freight. In the contract you write the rule and destination port together, like "CIF Busan."
CIF is CFR (Cost and Freight) with an insurance obligation added. Everything is the same as CFR, except that the seller takes out minimal cover.
Who Pays for What Under CIF
| Item | Bearer |
|---|---|
| Export clearance | Seller |
| Freight to destination port | Seller |
| Cargo insurance | Seller (ICC Clause C, minimum) |
| Import clearance and duties | Buyer |
The insurance is the minimal ICC (Institute Cargo Clauses) C. Its cover is narrow, so if needed the buyer should negotiate additional cover.
Cost Runs to Destination, Risk Ends at Origin
This is the core trap of CIF. The cost divide and the risk divide are different points.
- Cost: the seller pays freight and insurance to the destination port
- Risk: transfers to the buyer once the goods are loaded on board at origin
For example, if cargo is damaged mid-voyage under CIF, the seller may have paid the freight, but the risk has already passed to the buyer. So even under CIF, the buyer must check the insurance scope.
CIF vs FOB: Who Pays Freight and Insurance
These are the two most-compared rules. The risk-transfer point (on board at origin) is identical; only the cost burden differs.
| Aspect | CIF | FOB |
|---|---|---|
| Freight to destination port | Seller | Buyer |
| Insurance | Seller (minimum) | Parties' choice |
| Risk transfer | Once on board at origin | Once on board at origin (same) |
Use FOB to control transport yourself, or CIF to leave it to the seller. For which one actually costs less on a landed-cost basis, see FOB vs CIF.
CIF vs CIP: Sea Only or Any Mode
CIF is sea only and its insurance is minimal (ICC C). CIP works for any mode and its insurance is the top level (ICC A, 110%). For containers, air, or multimodal shipments, CIP, not CIF, is the correct rule. For a side-by-side view of insurance and risk transfer, see CIF vs CIP.
Import Duties and CIF
Korea assesses import duty on a customs value based on CIF. That is, the CIF amount becomes the starting point for the customs value. To see the duty and VAT a given CIF amount produces, use the CIF import duty calculator.
This guide is for general information. Actual contracts depend on the detailed rules of each rule and each deal, so confirm against the ICC rules and with a specialist.
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Frequently asked questions
What is the CIF rule?
CIF (Cost, Insurance and Freight) is the Incoterms rule under which the seller pays freight and cargo insurance to the destination port. It is for sea and inland-waterway transport only and adds a minimal insurance obligation to CFR.
What is the difference between CIF and FOB?
The risk-transfer point is the same for both, once the goods are on board at origin. The difference is that under CIF the seller pays the destination-port freight and insurance, while under FOB the buyer pays the main freight.
When does risk transfer under CIF?
The seller pays freight and insurance to the destination port, but risk transfers to the buyer once the goods are loaded on board at origin. The cost divide (destination) and the risk divide (origin) differ.
Is the import customs value based on CIF?
Yes. Korea assesses the import customs value on a CIF basis (freight and insurance included). If you contracted on FOB, you add freight and insurance to reach the customs value.
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