Premium Clause

The Premium Clause is a provision in foreign trade contracts or letters of credit concerning the bearing of cargo transport insurance costs, insured amount, types of coverage, and claims settlement. Its core purpose is to clarify whether the buyer or the seller is responsible for arranging insurance and paying the premium, typically linked to trade terms such as CIF and CIP: under CIF/CIP, the seller must arrange insurance at its own expense, but the premium is ultimately passed on to the buyer through the price; under FOB/FCA, the buyer arranges insurance and bears the premium. It applies to international cargo transport by sea, air, and land. Points to note: the types of coverage (e.g., FPA, WA, All Risks), the insured markup rate (usually 110% of the invoice value), the claims currency, and the place of payment must be clearly specified; if the letter of credit requires insurance, it must be strictly arranged according to the coverage types and markup rate stipulated in the L/C to avoid discrepancies in documents. Distinction from other terms: the Premium Clause differs from the Insurance Clause, which focuses on the specific rights and obligations under the insurance contract, while the former focuses more on cost bearing and the allocation of insurance responsibility.