As the contractor, you are responsible for the safety of your construction site. However, even 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, construction all risk insurance policy can safeguard you by playing a crucial role and offering financial security against losses or damages which arise during 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 for construction all risk insurance policy 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 at the construction Its cost includes contract work, which comprises of 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 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 accident or any series of accidents arising from one accident.
Note, as stated above, 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 construction all risk insurance policy would also rise.
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 first three months. There is an addition rate of 0.02%-0.05% per month beyond three months. In most of the cases, the premium of construction all risk insurance policy also depends on the number of storeys’ 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.
From 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-storeys’ 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 who decided the cost for construction all risk insurance policy by taking into consideration various factors.
As L.K Construction’s construction all risk insurance policy comprised of 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 for indemnity in respect of accident.
As the cost of construction all risk insurance policy depends on the construction type and the number of storeys’, the insurance company applied a rate of 1.75% premium for the first three months. If the work exceeded three months, the premium rate of 0.025% would be charged.
Further, as Gujarat was prone to earthquake, the insurer charged an extra premium for covering that peril as well.
The cost for construction all risk insurance policy of L.K Construction was calculated by the insurer 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 all risk insurance policy.