When shipping goods across international borders, it’s critical to understand the role of Incoterms and insurance responsibilities. These internationally recognized trade terms define the responsibilities of buyers and sellers. This includes who arranges shipping, who pays for what, and who holds liability during different stages of the shipping process.
If you’re involved in importing, exporting, freight forwarding, or insuring cargo, this article will help clarify how Incoterms impact your insurance responsibilities. And why having the right stock throughput or ocean cargo policy is essential to protect your financial interests.
What Are Incoterms?
Incoterms, short for International Commercial Terms, are standardized trade terms published by the International Chamber of Commerce (ICC). Created nearly a century ago, these rules have evolved to address the complexities of modern global trade. The latest version, Incoterms 2020, outlines 11 different rules that define the tasks, costs, and risks involved in the delivery of goods from seller to buyer.
Helpful Facts
- Incoterms define who holds risk and pays for insurance at each stage of shipping.
- Misunderstanding Incoterms can cause costly insurance gaps and denied claims.
- EXW and FOB place most insurance responsibility on the buyer.
- CIF requires sellers to insure, but only at minimum coverage.
- Aligning insurance policies with Incoterms is essential to avoid liability issues.
These terms serve as a universal language in international trade contracts. They eliminate confusion about who handles shipping arrangements, customs clearance, documentation, and insurance coverage. Without clearly defined Incoterms, disputes over responsibility can lead to significant financial losses and legal complications.
The Incoterms specified on your bill of lading determine who holds responsibility—and when it shifts from seller to buyer—throughout the shipping journey. Understanding these transfer points is essential for aligning your insurance coverage and avoiding costly exposure.
Why Your Insurance Coverage Strategy Matters
Your financial protection depends entirely on having either a comprehensive stock throughput policy or an appropriate ocean cargo policy that aligns with your Incoterms. The terms on your bill of lading determine who bears the risk. And therefore who needs to be covered by insurance.
Source: https://abcofprocurement.com/incoterms/
The relationship between Incoterms and insurance isn’t just theoretical—it has immediate practical implications for your business. When goods are damaged, lost, or delayed during international shipment, insurance companies will examine the bill of lading to determine coverage responsibilities. If there’s a mismatch between your Incoterm and your insurance policy’s coverage period, you could face complete financial exposure.
Misunderstanding this relationship can lead to:
- Gaps in insurance coverage where no one is protected
- Delayed claims payouts due to policy confusion
- Significant financial losses when damage occurs during uncovered periods
- Legal disputes over who should have maintained coverage
For example, under FOB terms, once goods are loaded onto the vessel, the buyer assumes all risk. If the buyer doesn’t have ocean cargo insurance or stock throughput coverage active from that point forward, they’re exposed to loss. This scenario plays out frequently when buyers assume the seller’s responsibility extends further than it does under the agreed Incoterm.
The Insurance Coverage You Actually Need
Stock Throughput Policies: The Comprehensive Solution
Stock throughput policies provide seamless coverage from the point of origin to final delivery—including warehouse storage and inland transport. This type of policy is valuable because it eliminates coverage gaps that can occur when responsibility transfers between parties under different Incoterms.
How Coughlin Insurance Services Can Help
At Coughlin Insurance Services, we specialize in providing robust commercial and cargo insurance solutions that align with the realities of global trade. Our advisors can:
- Analyze your shipping terms
- Identify gaps in existing coverage
- Recommend tailored policies like marine cargo insurance or stock throughput
- Support documentation and claims management
With decades of experience in insuring importers, exporters, manufacturers, and logistics firms, we help protect your business from unnecessary exposure.
Incoterms are more than legal jargon—they define risk ownership at every step of the global supply chain. Misunderstanding them can lead to expensive gaps in coverage, denied claims, and operational disruptions.
Whether you’re a seasoned importer or just entering international markets, aligning your insurance with Incoterms is essential. Partnering with experts like Coughlin Insurance Services ensures your goods—and your business—are fully protected.
A Partnership Where Understanding Meets Action
Since 1947, Coughlin Insurance Services has committed its resources to assist distributors, importers, and exporters, ensuring they are protected against the unpredictable nature of the food trade industry. As specialists who understand the nuances and vulnerabilities of the global food distribution network, we have fine-tuned our insurance solutions to cater to this industry’s evolving dynamics. Our affiliations with the Association of Food Industries (AFI), National Frozen & Refrigerated Foods Association (NFRA), and the Peanut And Tree Nut Processors Association (PTNPA), reinforce our commitment to safeguarding your business with unparalleled expertise. We ask you to consider a partnership where understanding meets action.
You may have been recommended to us by one of our many satisfied customers, or you may have searched online for “Ocean Cargo & Stock Throughput Insurance near me.” However you found us, we’re happy to welcome you. To discuss your needs and objectives and how we can help your company, please contact JJ Van Aman, Vice President of Sales email: jj@coughlinis.com or tel: 973-598-5884 or reach out for a free insurance quote today!
Sources we have researched to generate content in this article: https://abcofprocurement.com/incoterms/, https://traderiskguaranty.com/trgpeak/increased-tariffs-impact-u-s-customs-bonds/