Nowadays, various construction projects face several challenges that may result in a delay and involve financial loss to the firm. A delay in completion can lead the construction companies, developers, contractors and other parties to incur significant losses. The Advance Loss of Profit (ALOP) Insurance provides coverage for financial losses due to construction and infrastructure project delays. It provides coverage for the loss of anticipated profits due to a delay in the completion of a project.
ALOP Insurance’s primary objective is to reimburse the project’s owner for losses due to delays in the insured work’s completion. This delay can be due to direct physical loss or damage covered under the Contractor’s All-Risk Insurance (CAR) policy/ Erection All-Risk Insurance (EAR) policy.
The policy is even more important for organizations that use debt financing, as they may struggle to repay debts if they experience any financial losses. For example, if they incur debt for procurement of plant, machinery, and construction equipment for erection, etc. ALOP is often referred to as delayed completion coverage or delay in start-up (DSU) insurance.
Let’s Understand How Advance Loss of Profit Insurance Work For A Construction Project
Large construction projects purchase advance loss of profit insurance because they face several risks that result in the delay of completion. For instance, harsh winters may delay the start of the construction and thus, the completion date. It may be that the construction site soil is more unstable for the engineers than estimated before. Thus, the overall possible causes for delays are numerous and often unexpected.
What are the effects of Delays in Construction Projects?
Construction delays can have a serious impact on a company’s finances.
- If a company is relying on the timely completion of a construction project, delays can cause major problems. Companies that use debt financing may find it difficult to repay debts if they have to rent or purchase construction equipment.
- Even companies who are planning to move into a new building may face losses because they are not able to open the business on time.
- Delays to the construction projects such as airports, railway stations, harbours, bridges etc, may negatively impact various companies over a wide geographic area.
The ALOP is designed to help and protect a portion of the revenue so that the principal can service the debt and realize the expected profit. The companies that purchase ALOP coverage can play a variety of vital roles in a construction project. For example, investors in the project may purchase ALOP insurance to cover the cost of not being able to earn rent from building tenants. Having this safety net, allows the construction company to continue earning an income even if there are delays in the project.
Building contractors purchase insurance for a variety of reasons, one of which is to cover the cost of renting construction equipment and paying employees for longer than initially planned. Another way that companies that rent out equipment used in construction may utilize the insurance is to cover the costs of not being able to rent the equipment for other projects that come up.
Who Can Take ALOP Insurance Policy?
This policy is specifically designed for people who are directly or indirectly involved in the construction business including contractors or subcontractors, the owner(s), and companies financing the project.
At SecureNow, we go above and beyond to tailor innovative insurance programs that will address the unique needs of our clients. With our deep understanding of the industry and technical expertise, we’re able to deliver results that not only meet but exceed the expectations of our clients. Contact us to know more about types of insurance or avail of the quotations instantly.