Calculating Insurance Coverage in International Commodity Trade

 Let's illustrate the process of calculating insurance coverage

Let's use an example of a 20-foot full container load (FCL) of olive oil to illustrate the process.

First:  

 Determine EXW (Ex-Works) Price: Assume the EXW price for one FCL is $48,000. 

 

 

 Calculate Total Delivery Cost: Add all expenses to get the goods from the factory to the destination port, including: 

• Freight: $5,000
• Terminal Handling Charges: $500
• Wharf Fees: $500
• Documentation/Forwarding Fees: $500
• Drayage: $500
• Total Delivery Costs: $7,000 

 

 Second:

 

Determine the Selling Price (CFR/FCA): The total cost to the port is the EXW price plus delivery costs: $48,000 + $7,000 = $55,000.

 

Third: 

 

Add Operational Expenses: The professional trader must add their operational expenses to the selling price. Let's say this is $6,000.

 

Final Value for Insurance: 

 

The total value of the shipment for insurance purposes is the CFR/FCA price plus the trader's operational expenses: $55,000 + $6,000 = $61,000.

 

 

Calculate Insurance Premium: 

 

Insurance is typically calculated at a percentage of the total value. Incoterms 2020 and trade policy require a minimum of 110% coverage. However, to protect the traders's operational expenses, 115% coverage is recommended. 

 

Let's use 110% as an example.

 

• Total Value: $61,000
• Coverage Amount (110%): $61,000 x 1.10 = $67,100
• If the insurance rate is 70 cents per $100 (0.70/100), the premium is: ($67,100 / $100) x 0.70 = $469.70.

Final CIF/CIP Price: The final price includes all costs, plus the insurance premium: $61,000 + $469.70 = $61,469.70.