Advance Loss of Profit (ALOP) Insurance Policy

Advance Loss of Profit (ALOP) Insurance Policy

Mega construction projects face a number of challenges that could result in delayed completion.

Construction projects typically have set schedules for building structures and a time frame for completion of the buildings, but a number of extenuating circumstances may arise that prevents the project from finishing on time. A delayed completion can lead to construction companies, developers, and other parties to incur losses that they may not have planned for. Delay in completion coverage is designed to protect against these additional expenses. Advance Loss of Profit Insurance policy covers such eventualities. The policy is taken by the Principal as he stands to lose in case of any delay in the commissioning of the project.

The object of ALOP Insurance is to indemnify the principal or owner of a project for the actual loss sustained due to a delay in completion of the insured works. This delay must be caused by direct physical loss or damage covered under the CAR policy / EAR policy.

The delays can severely impact the revenues, profits, finances of the organisation relying on timely completion of the project. The organisation that use debt financing may find it difficult to repay debts, such as those incurred for procurement of the plant & machineries & construction equipment, for erection, for working capital etc.  The organization involved in major projects such as roads, bridges, tunnels, airports, seaports etc may face bankruptcy.

The policy can be taken by the principal or owner only. Quite often the Banker’s / Financier’s interest has to be noted. Contractors, Subcontractors and Engineers, Architects, Consultants etc. cannot be accepted as insured hereunder.

  • The insurance cover, terms & condition, rates are largely based on the policy rates under CAR policy / EAR policy, the indemnity period, exclusions, extensions, bar chart, construction milestones, construction methodology, project monitoring mechanism etc.
  • There may be several incidents during the policy period but there shall be one claim only.
  • Any delay due to amendments, rectifications, betterments, modification, redesign (even after indemnifiable incident) are not covered.
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