INTERNATIONAL TRADE LAW
Export Insurance: Protecting Your Global Shipments
Export insurance protects an exporter against two very different risks: physical loss or damage to goods in transit, and a foreign buyer who does not pay. Those are covered by two separate products — cargo (marine) insurance for the shipment, and export credit insurance for the receivable — and a well-protected exporter usually carries both. Neither is the same as a letter of credit, which is a payment mechanism rather than insurance.
The two risks are independent. Your container can arrive in perfect condition and the buyer can still go bankrupt before paying; the buyer can be flawless and the cargo can be lost at sea. Matching the right cover to each risk is what keeps a single bad shipment from becoming a loss you absorb.
The two kinds of cover
| Risk | Insurance | What it covers | Typical provider |
|---|---|---|---|
| Goods lost or damaged in transit | Cargo / marine insurance | Physical loss or damage from origin to destination | Private marine insurers |
| Buyer fails to pay | Export credit insurance | Commercial default and political risk on the receivable | Private insurers; EXIM Bank |
Cargo (marine) insurance
Cargo insurance covers physical loss or damage while goods are in transit by sea, air, or land. Coverage is usually written against the Institute Cargo Clauses — Clauses (A) being the broadest “all-risks” cover and Clauses (C) the most limited. Who must buy it, and how much, can be set by your delivery term: under the Incoterms 2020 rules, a seller on CIF terms must provide at least minimum (Clauses C) cover for the buyer, while CIP terms require the higher all-risks (Clauses A) level. On most other terms, insurance is optional but still prudent.
Export credit insurance
Export credit insurance protects the receivable — the money the buyer owes you. It covers two families of risk:
- Commercial risk — the buyer’s insolvency, bankruptcy, or protracted default; and
- Political risk — war, expropriation, or a government blocking currency conversion or transfer.
In the United States, this cover is offered both by private insurers and by the Export-Import Bank of the United States (EXIM), the official U.S. export credit agency. EXIM short-term policies generally support repayment terms up to about 180 days (longer for certain capital goods and agricultural commodities). Credit insurance is what makes it safe to offer a foreign buyer open-account or other competitive payment terms instead of demanding cash in advance.
How to decide what you need
- Always insure the cargo. Sea and air transit losses are real and often excluded from a carrier’s limited liability. Confirm whether your Incoterm makes you or the buyer responsible, and insure your portion of the journey.
- Insure the receivable when you extend credit. If you sell on open account or on terms longer than a few weeks, credit insurance turns an unsecured promise into a protected asset — and lenders will often advance against insured receivables.
- Match the cover to the term. Read your Incoterm and your sales contract together so there is no gap between where your risk ends and where the buyer’s begins.
- Read the exclusions. Marine policies exclude inadequate packing; credit policies exclude disputes about the goods. Insurance pays for misfortune, not for contract breaches you could have prevented.
A letter of credit, by contrast, is not insurance at all — it is a bank’s conditional promise to pay against documents. It reduces nonpayment risk but does nothing for cargo loss, which is why exporters often pair payment instruments with insurance rather than choosing one.
Frequently asked questions
Is export credit insurance the same as a letter of credit?
No. A letter of credit is a payment mechanism — a bank’s conditional undertaking to pay against compliant documents. Export credit insurance is an indemnity policy that reimburses you if an insured buyer fails to pay. They address the same risk from different directions and are often used together.
Does my delivery term decide who buys cargo insurance?
It can. Under Incoterms 2020, CIF and CIP require the seller to insure the goods for the buyer (at different minimum levels). On most other terms insurance is optional, so confirm responsibility in the contract.
What does export credit insurance actually cover?
Commercial risk — the buyer’s insolvency or protracted default — and political risk, such as war, expropriation, or a government blocking currency transfer. It does not cover disputes over the quality or conformity of the goods.
Where can U.S. exporters get export credit insurance?
From private trade-credit insurers and from the Export-Import Bank of the United States (EXIM), the official U.S. export credit agency, whose short-term policies generally cover terms up to about 180 days.
The right insurance is the difference between a recoverable setback and a write-off. Reidel Law Firm prepares flat-fee import/export compliance memos that align your insurance, Incoterms, and payment terms so the gaps are closed before you ship — with direct attorney access. Get a flat-fee import/export compliance memo →.
