As the contractor, you are responsible for the safety of your construction site. However, even if you would take all the safety measures; accidents can arise at your construction site and disrupt your business. As a contractor, you would be held responsible for the loss or damage caused at the construction site and even to the third party. You would have to recoup the financial losses. Here, a construction all-risk insurance policy can safeguard you by playing a crucial role and offering financial security against losses or damages which arise during the construction business. As per your business requirement, you can buy a construction all-risk insurance policy. However, you would have to pay a premium to get the coverage. That is called the cost of construction all-risk insurance policy.
The cost of construction all-risk insurance policies would depend on various factors, like the cost of the project, the tenure of the project, project location, etc.
Construction all-risk insurance policy has the following two parts, and the cost of construction would depend on them-
Material Damage
It includes those losses or damages which happen during the construction Its cost includes contract work, which comprises the price of the contract and the material or item along with the construction plant & machinery.
Third-Party Liability
If at your construction site, any bodily injury is caused to the third party, you would be held responsible for it and here your construction all-risk insurance would offer you financial coverage. The cost for third-party liability insurance would consider the cost for indemnity in respect of an accident or any series of accidents arising from one accident.
Note, as stated above, a construction all-risk insurance policy has the parts mentioned above, if you would expand your cover and go for extra covers like express freight, debris removal, etc.; your cost for the construction all-risk insurance policy would also rise.
Read More: Who can purchase Engineering All Risk Insurance?
Then insurance companies have laid down the premium rates for various types of construction projects. For instance, for residential and commercial buildings, the premium rates vary between 1%-4% up to the first three months. There is an additional rate of 0.02%-0.05% per month beyond three months. In most cases, the premium of a construction all-risk insurance policy also depends on the number of stories as well.
Then if your construction site is in the earthquake zone, an extra amount would be added to your construction all-risk insurance policy premium.
Case : Cost of Construction All Risk Insurance
Over the last five years, L.K Construction has established a name for itself in the construction sector. Last year, the company bagged a big contract of constructing a three-stories office in Gujarat. Since it was a huge project, the company decided to purchase a construction all-risk insurance policy.
The company approached the insurance company and decided the cost for the construction of all-risk insurance policies by taking into consideration various factors.
L.K Construction’s construction all-risk insurance policies comprised third-party liability and comprehensive cover. The insurer asked for the cost of the project along with the cost of the materials. Further, the insurer also considered the cost of indemnity in respect of the accident.
Read More: How can you minimize the premium for Engineering All Risk Insurance?
As the cost of construction in all-risk insurance policies depends on the construction type and the number of stories, the insurance company applied a rate of 1.75% premium for the first three months. If the work exceeded three months, it would charge a premium rate of 0.025%.
Further, as Gujarat was prone to earthquakes, the insurer charged an extra premium for covering that peril as well.
The insurer calculated the cost for the construction all-risk insurance policy of L.K Construction. After considering all the above factors, along with the type of project, cost of the project, etc. As L.K Construction also opted for a rider which was the removal of debris. The insurer considered its cost as well while computing the total cost of construction of an all-risk insurance policy.
