{"id":326,"date":"2026-10-06T11:02:19","date_gmt":"2026-10-06T11:02:19","guid":{"rendered":"https:\/\/www.salasarservices.com\/blog\/?p=326"},"modified":"2026-10-06T12:58:35","modified_gmt":"2026-10-06T12:58:35","slug":"contractors-all-risk-insurance-guide","status":"publish","type":"post","link":"https:\/\/www.salasarservices.com\/blog\/contractors-all-risk-insurance-guide\/","title":{"rendered":"Contractor’s All Risk Insurance: What Every Project Owner Should Check Before Buying"},"content":{"rendered":"

India is in the middle of a long building cycle. The Union Budget 2025-26 set aside \u20b911.21 lakh crore for capital spending, about 3.1% of GDP, a large part of it going into roads, water, power and urban projects [1<\/a>]. Private investment in real estate, factories and warehouses is moving in the same direction. As per IBEF, infrastructure investment is expected to rise from 5.3% of GDP in FY24 to about 6.5% by FY29 [2<\/a>]. For anyone putting up a building, a plant or a civil structure, this means more work, but also more money at risk on site at any given time.<\/p>\n

A construction site is exposed to a long list of things that can go wrong. Fire, flood, a collapse during work, theft of steel and cement, damage while machinery is being installed, or a wall falling on a neighbour’s property. Any one of these can turn a profitable project into a loss. This is the gap that a Contractor’s All Risk (CAR) policy<\/a> is built to close. For a project owner or an MSME putting its own capital into a build, CAR insurance is not a formality. It is the cover that decides whether an accident on site is a manageable claim or a hit you carry on your own books.<\/p>\n

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As an insurance broker, our job at Salasar is to sit on your side of the table, read the risk, and arrange cover that matches the actual project rather than a standard template. This guide explains how CAR insurance works and the specific points to check before you sign, subject to policy terms, conditions and exclusions.<\/p>\n

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What Contractor’s All Risk insurance actually covers<\/strong><\/p>\n

A CAR policy is a project-specific cover taken for the period of construction. It is usually written in two parts [3<\/a>][4<\/a>].
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\nSection I: Material Damage<\/strong>
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\nThis covers accidental physical loss or damage to the works under construction and the materials on site, on an all-risk basis, other than what the policy specifically excludes. It typically responds to fire, flood, storm, earthquake, collapse, and theft or burglary of insured property during the build [3<\/a>][4<\/a>]. In simple terms, if the thing you are building, or the material meant to go into it, is damaged by a sudden and accidental event, this is the section that pays.
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\nSection II: Third Party Liability<\/strong>
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\nConstruction affects people and property around the site. Section II covers your legal liability for accidental injury to a third party, or damage to third-party property, arising out of the project, along with the associated legal costs [3<\/a>]. This is the part that matters when a passer-by is hurt or a neighbouring structure is damaged during the work.<\/p>\n

Cover usually starts from the commencement of work, or after materials are unloaded at the site, whichever is earlier, and runs to the end of the policy period or until the works are handed over and put to use [3<\/a>].<\/p>\n

A quick view: covered versus usually excluded<\/strong><\/p>\n\n\n\n\n\n\n\n\n\n\n\n
Commonly covered (Section I \/ II)<\/strong><\/td>\nCommonly excluded from the base policy<\/strong><\/td>\n<\/tr>\n<\/thead>\n
Fire, lightning, explosion<\/td>\nThe policy excess (first amount you bear per claim)<\/td>\n<\/tr>\n
Flood, storm, cyclone, inundation<\/td>\nNormal wear, rust, gradual deterioration<\/td>\n<\/tr>\n
Earthquake (where opted \/ endorsed)<\/td>\nFaulty design<\/td>\n<\/tr>\n
Collapse during construction<\/td>\nCost of rectifying defective material or workmanship<\/td>\n<\/tr>\n
Theft and burglary of insured property<\/td>\nWar, nuclear risks, wilful acts<\/td>\n<\/tr>\n
Third-party injury and property damage<\/td>\nLoss due to cessation of work<\/td>\n<\/tr>\n
Legal costs for third-party claims<\/td>\nConsequential loss, penalties, delay in completion<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The exact wording differs between insurers, so the list above is indicative. The policy wording in force on the date of loss is what governs a claim, which is why reading the schedule and clauses matters more than the brochure [3<\/a>][4<\/a>].<\/em><\/p>\n

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Who should buy it, and in whose name<\/strong><\/p>\n

A CAR policy can be taken by the principal (the project owner), the main contractor, or a sub-contractor, individually or jointly [3<\/a>]. Insurers themselves describe the eligible buyers as builders, developers, contractors, sub-contractors and project owners [4<\/a>].<\/p>\n

This raises a practical question that project owners often miss. If the policy is taken only in the contractor’s name, your interest as the owner may not be protected the way you assume. The cleaner approach is a joint-names policy that lists the principal, the contractor and, where relevant, sub-contractors as insured parties. A cross-liability extension can also be added so that each insured party is treated as separately covered [3<\/a>]. Before work starts, it is worth confirming who is named on the policy and whether your name is actually on it.<\/p>\n

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The DOs before you buy<\/strong><\/p>\n

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    \n
  1. \n
      \n
    1. Insure the full completed value of the works. <\/strong>The sum insured should represent the full value of the contract works on completion, including materials, freight, customs duty and erection cost. Insurers are clear that the cover should broadly equal the contract price [3<\/a>]. If you insure for less than the correct value, the claim can be cut down in proportion, so under-insurance quietly reduces what you recover exactly when you need it.<\/li>\n
    2. \u00a0Describe the project accurately. <\/strong>Give correct details of the type of construction, location, design, method and duration. The premium and the cover both depend on this information, and a wrong description can create a dispute at claim stage.<\/li>\n
    3. Match the policy period to the actual schedule. <\/strong>The cover should run for the real construction timeline. If testing, commissioning or a maintenance period apply, check that these are built in rather than assumed.<\/li>\n
    4. Cover testing, commissioning and the maintenance period. <\/strong>Projects involving machinery or electrical installation carry real exposure during testing and commissioning, and many contracts require a maintenance or defects-liability period afterwards. Both can be added by extension, for example a limited or extended maintenance cover [3<\/a>]. Do not assume they are part of the base policy.<\/li>\n
    5. Add the extensions your project genuinely needs. <\/strong>Depending on the site, useful add-ons include debris removal, escalation (automatic increase in sum insured), earthquake and flood, terrorism, professional fees, off-site storage, inland transit and cover for surrounding or existing property [3<\/a>]. Each carries additional premium, so match them to your actual risk.<\/li>\n
    6. Confirm all parties who need cover are named. <\/strong>Check whether the principal, contractor and sub-contractors should all be insured parties as per the contract, and get them named on the schedule.<\/li>\n
    7. Disclose everything material. <\/strong>Tell the insurer about unusual construction methods, hazardous activities, previous losses and anything else that affects the risk. Full disclosure at the start protects the claim at the end.<\/li>\n<\/ol>\n<\/li>\n<\/ol>\n

      The DON’Ts to avoid<\/strong><\/p>\n

       <\/p>\n

        \n
      1. Do not buy on lowest premium alone. <\/strong>A cheaper quote often means a higher excess, narrower cover or missing extensions. Compare coverage, exclusions, deductibles and limits, not just the price.<\/li>\n
      2. Do not assume every construction risk is covered. <\/strong>CAR cover is broad but not open-ended. Standard policies exclude faulty design, the cost of correcting defective material or workmanship, normal wear, and losses from cessation of work, among others [3<\/a>][4<\/a>]. Read the exclusions before you rely on the cover.<\/li>\n
      3. Do not ignore the excess. <\/strong>Every claim carries a first amount that you bear, called the excess or deductible. A very high excess lowers the premium but raises your out-of-pocket cost after a loss [3<\/a>].<\/li>\n
      4. Do not assume contractors’ plant and machinery is automatically covered. <\/strong>Construction equipment such as cranes and excavators may need a separate Contractors’ Plant and Machinery cover or a specific extension, rather than being part of the base CAR policy [3<\/a>].<\/li>\n
      5. Do not leave design-related risk unchecked. <\/strong>Understand how the policy treats defective design, material and workmanship, and whether a design extension is available and required for your project [3<\/a>].<\/li>\n
      6. Do not wait until work has progressed. <\/strong>Arrange CAR cover before work begins and make sure the start date on the policy matches the actual commencement of the insured risk. Cover taken late can leave the early, and often riskiest, stage exposed.<\/li>\n
      7. Do not skip disclosure of changes during the project. <\/strong>A major change in project value, scope, method or completion date should be told to the insurer during the policy, not discovered at claim time.<\/li>\n<\/ol>\n

        If something goes wrong: the claim basics<\/strong><\/p>\n

         <\/p>\n

        How you act in the first few days after a loss has a direct effect on the claim. A few standard steps apply across most CAR policies [3<\/a>]:<\/p>\n