In international trade, many shipments travel long distances by sea, air, or land, exposing them to risks of damage, theft, or loss. To protect buyers and sellers, Letters of Credit (LCs) often require insurance coverage. Article 28 of UCP 600 sets out the rules on what makes an insurance document acceptable under an LC.
This ensures banks, exporters, and importers have a clear framework for handling insurance in trade finance.
What Does Article 28 of UCP 600 Say?
A valid insurance document under an LC must follow these rules:
- Issuance & Signature
- Must be issued and signed by an insurance company, underwriter, or their agent/proxy.
- The capacity of the issuer must be clearly shown.
- Type of Document
- Insurance certificate, insurance policy, or other acceptable document (depending on LC terms).
- Cover note is not acceptable.
- Coverage & Risks
- Must cover at least the risks stated in the LC.
- If LC requires “all risks,” banks accept an “all risks” policy even if it excludes certain common exceptions (like war, strikes, or inherent vice).
- Amount of Insurance
- Must cover at least the value required in the LC.
- If no amount is specified in the LC, coverage must be at least 110% of the CIF or CIP value of the goods.
- Currency
- Insurance must be expressed in the same currency as the LC, unless otherwise stated.
- Date of Issuance
- Must not be later than the date of shipment.
- If issued after shipment, it must clearly state that coverage is effective from the date of shipment.
- Port of Loading & Destination
- Must clearly cover the transit route required by the LC (e.g., Chattogram to Rotterdam).
Breaking Down Article 28
Why Insurance Rules Are Important?
- Protects the buyer (importer) if goods are damaged or lost in transit.
- Protects the seller (exporter) by ensuring payment is not blocked due to insurance discrepancies.
- Helps banks examine documents consistently and without ambiguity.
Exporter’s Responsibility
✔ Obtain the correct type of insurance (policy/certificate, not cover note).
✔ Ensure the coverage amount and risks meet LC requirements.
✔ Double-check currency and dates before presenting to bank.
Importer’s Responsibility
✔ Clearly state insurance requirements in the LC.
✔ Consider whether additional coverage (e.g., war risk, strike risk) is necessary.
Bank’s Role
✔ Banks only check the face of the insurance document.
✔ They do not verify the actual validity of the insurance contract.
✔ If terms in LC and insurance document match → compliant.
Practical Trade Example
A Bangladeshi exporter ships ceramics to Dubai under an LC requiring:
- Insurance for 110% of CIF value.
- Coverage against “all risks.”
Scenario 1 (Acceptable):
- Insurance certificate issued by Sadharan Bima Corp.
- Covers “All Risks.”
- Amount: 110% of CIF value, in USD.
- Issued on 10 Nov 2025 (same day as shipment).
✔ Bank accepts.
Scenario 2 (Discrepant):
- Insurance document issued on 12 Nov 2025, shipment was on 10 Nov.
- Document does not mention retroactive coverage from shipment date.
❌ Bank rejects — late issuance without retroactive clause.
Scenario 3 (Acceptable partial exclusion):
- Insurance marked “All Risks – excluding war and strikes.”
✔ Acceptable — exclusions do not make it non-compliant unless LC specifically required war/strike coverage.
Why Article 28 Matters
- Sets uniform rules for insurance documents worldwide.
- Prevents disputes about coverage, amount, and timing.
- Protects both buyers and sellers by ensuring adequate insurance exists before goods are shipped.
- Helps banks judge insurance documents objectively.
Final Thoughts
Article 28 of UCP 600 ensures that insurance is properly documented and effective, safeguarding trade transactions against risk. For exporters, small errors like using the wrong insurance type or issuing it too late can cause LC rejection and delayed payment. For importers, it ensures they receive goods that are adequately insured for transit risks.
The key takeaway: insurance under an LC must be authentic, timely, and adequate — otherwise, the whole deal is at risk.