Which party bears the risk of loss during a shipment is set by the trade term in the sales contract. Insurance bought without reference to that term routinely covers the wrong stretch of the journey.
What the terms actually allocate
Standardized trade terms allocate three things: who arranges carriage, who bears cost at each stage, and where risk of loss transfers from seller to buyer.
These three do not always transfer at the same point. Some terms leave the seller paying for freight to the destination while risk passed at the origin port.
That split is the single most misunderstood feature. Paying for something does not mean bearing the risk in it.
Where the gaps appear
If a buyer insures from the destination port inward, and risk passed when the goods crossed the ship's rail at origin, the ocean leg is uncovered.
The reverse gap also occurs. A seller may keep a policy running to the destination out of habit while contractual risk ended much earlier, paying for cover it no longer needs.
Gaps are usually invisible until a claim, because both parties assume the other's arrangement covers the interval.
Why insurable interest matters
A claim requires the claimant to have an interest in the goods at the time of loss. Holding a policy is not sufficient if risk had not passed.
Insurers apply this strictly, and the sales contract is the document that decides it. The bill of lading and the invoice terms are read together to establish the transfer point.
This is why claims are sometimes declined on otherwise valid policies, with each party's insurer pointing at the other.
How some terms require cover explicitly
Two of the standard terms require the seller to obtain insurance for the buyer's benefit, and they specify a minimum level of cover and a minimum sum insured.
The default minimum under one of them is a restricted set of named perils rather than broad cover, which buyers often assume is wider than it is.
Where broader cover is wanted, the sales contract has to say so, since the term's default governs unless the parties agree otherwise.
What to check before shipping
The practical check is short. Identify the term, identify the point risk passes under it, and confirm the policy attaches at or before that point and runs to the intended end.
Warehouse-to-warehouse wording in many cargo policies extends cover beyond the ports, but its start and end depend on the insured's interest existing throughout.
Reconciling contract term and policy wording before departure costs little, while reconciling them after a loss usually involves lawyers.