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Simple English definitions for legal terms
cost, insurance, and freight
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A quick definition of cost, insurance, and freight:
Cost, Insurance, and Freight (CIF) is a term used in business when buying and selling goods. It means that the seller is responsible for getting the goods ready for export, arranging for transportation by water, and buying insurance to protect the buyer from damage during shipping. The seller also pays for the shipping costs to the port of destination. Once the goods are loaded onto the ship, the seller's job is done, and the buyer takes on the risk of any damage or loss. This term is only used when goods are transported by sea or inland waterway.
A more thorough explanation:
Cost, Insurance, and Freight (CIF) is a term used in business contracts that outlines the responsibilities of the buyer and seller when it comes to the delivery, payment, and risk of loss of goods. When a seller agrees to CIF terms, they must:
- Clear the goods for export
- Arrange for transportation by water
- Procure insurance against the buyer's risk of damage during carriage
- Pay the costs of shipping to the port of destination
Once the goods are loaded onto the receiving ship while docked in the port of shipment, the seller's delivery is complete, and the risk of loss passes to the buyer. CIF terms are only used when goods are transported by sea or inland waterway.
Let's say a company in the United States wants to purchase 1,000 widgets from a company in China. The two companies agree to CIF terms, and the Chinese company is responsible for clearing the goods for export, arranging for transportation by sea, procuring insurance against damage during carriage, and paying the costs of shipping to the port of destination in the United States.
Once the widgets are loaded onto the ship in China, the Chinese company's delivery is complete, and the risk of loss passes to the U.S. company. If the widgets are damaged during transit, the U.S. company can file a claim with the insurance company procured by the Chinese company.
This example illustrates how CIF terms allocate the responsibilities of the buyer and seller when it comes to the delivery, payment, and risk of loss of goods.