An advance loss of profit is coverage for financial losses due to delays in construction and infrastructure projects.

What is an Advance Loss of Profit (ALOP) Insurance policy?

An advance loss of profit (ALOP) insurance policy is a specialized type of insurance coverage designed to protect businesses from financial losses resulting from delays in project completion due to unforeseen circumstances. It is particularly relevant for industries like construction, infrastructure development, and manufacturing where project timelines are critical to overall profitability.

It offers protection against the loss of anticipated profit brought on by a project's completion delay. The main goal of ALOP Insurance is to compensate the project owner for losses brought on by delays in the completion of the insured work. This delay may result from loss or damage covered in the erection all-risk insurance (EAR) insurance or contractor's all-risk insurance (CAR) policy.

ALOP insurance goes beyond traditional property damage insurance by focusing on the indirect financial consequences of project delays. These delays could arise from events such as natural disasters, fires, equipment breakdowns, political instability, or any other unforeseen event that hampers the project's progress. Such delays can lead to additional costs, lost revenues, and increased expenses that aren't covered by standard insurance policies. Advance loss of profit insurance only covers the actual loss of gross profit stemming from a delayed project. The types of events that trigger coverage are outlined in the policy language, but it may not cover all event types.

Features of Advance Loss of Profit (ALOP) Insurance Policy

  • Covers financial losses that occur during a predefined period (known as the "indemnity period)
  • Unlike property insurance which covers direct physical damage, ALOP insurance focuses on indirect financial losses.
  • ALOP insurance policies can be customized to suit the specific needs of the insured project.
  • ALOP insurance helps businesses maintain business continuity and financial stability during the recovery period following a project delay.
  • ALOP insurance is often purchased in conjunction with property damage insurance and other related coverage to provide comprehensive protection against a wide range of risks.

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Who needs the Advance Loss of Profit (ALOP) Insurance Policy?

An ALOP insurance policy is relevant and beneficial for a wide range of businesses across various industries. Here are some examples of businesses that would benefit from having this policy:

  • Construction companies
  • Manufacturing companies
  • Infrastructure industries
  • Contractors or subcontractors
  • Companies that provide financing to different types of projects
  • Energy and power industry
  • Transportation and logistics
  • Renewable energy projects

Why do you need an Advance Loss of Profit (ALOP) Insurance Policy?

An advance loss of profit (ALOP) insurance policy is essential for businesses and projects that are susceptible to financial losses resulting from unexpected delays. For example, when it comes to the construction industry, various construction projects these days face challenges that may lead to a delay and involve financial loss to the construction companies, developers, contractors, and other parties. Unexpected events like natural disasters, fires, regulatory issues, and supply chain disruptions can lead to project delays. ALOP insurance covers the indirect financial losses that occur due to project delays.

These losses can include additional operating costs, increased expenses to expedite the project, and loss of anticipated profits during the period of delay. Delays in project completion can even disrupt business operations and affect the revenue stream. ALOP insurance aids in maintaining business continuity by providing the necessary funds to cover ongoing expenses and obligations. Moreover, if such a project has contractual commitments or penalties for not meeting deadlines, ALOP insurance can help cover these financial liabilities. Project delays can eat into your anticipated profits due to increased costs and missed revenue opportunities. ALOP insurance safeguards your profit margins, helping you achieve your financial goals.

If you own such a project, you often rely on funding from investors, lenders, or stakeholders. ALOP insurance can enhance your credibility by showing that you have a plan in place to manage unforeseen delays, potentially making it easier to secure financing. Some projects need to adhere to specific regulatory timelines to qualify for government incentives or meet legal requirements. ALOP insurance ensures you can meet these obligations even if unforeseen delays occur.

What is included in an advance loss of profit insurance?

ALOP insurance covers loss or damage caused by any or all the insured items under the EAR/CAR material damage policy unless specifically excluded in this policy, the coverages provided by this policy may be categorized as mentioned below -

  • Loss of gross profit

ALOP insurance covers the financial losses that a business may incur due to delays in the completion of a project caused by specific insured events. The insurance coverage is based on the concept of "gross profit," which is calculated by subtracting the operating expenses (like wages, rent, and other fixed costs) from the projected or anticipated revenue. The insurance company will compensate the business for the difference between the actual gross profit earned during the indemnity period and the projected gross profit that would have been earned if the project had been completed on time.

  • Increased cost of working

When a covered event leads to a project delay, the insured business may need to take various measures to expedite the completion of the project and minimize losses. These measures can include renting alternative facilities, expediting materials or equipment, and incurring additional labor costs. These extra expenses incurred to maintain or accelerate the project's progress are known as the 'increased cost of working' and are covered up to the policy limits.

  • Delay in Start-Up (DSU) Costs

ALOP insurance typically covers the additional costs incurred during the extended period required to complete the project due to delays. These costs can include extended overheads, wages, salaries, and other operating expenses.

  • Standing Charges

This coverage addresses fixed costs that continue to accrue during the delay period, such as rent, insurance premiums, and administrative expenses.

  • Contractual Penalties

If your project contracts have penalty clauses for delays, the insurance policy might cover the financial penalties you're required to pay.

  • Mitigation Costs

ALOP insurance might cover the costs incurred to mitigate the impact of the delay, such as the expenses associated with finding alternative suppliers or subcontractors.

What is not included in an advance loss of profit insurance?

Here are some common exclusions typically found in ALOP policies in India:

  • Loss or damage covered in the CAR/EAR Policy by endorsement, unless it has been agreed specifically in writing.
  • Loss of or damage to surrounding property, construction machinery, plant, and equipment.
  • Any restrictions imposed by a public authority.
  • Non-availability of funds
  • Loss of or damage to operating media or feedstock, destruction, shortage, deterioration of, or damage to any materials necessary for the insured business.
  • Any loss due to fines or damages for breach of contract, for delay or non-completion of orders, or for any penalties.
  • Loss/damage caused because of war & warlike activities, riots, strikes, etc.
  • Loss of business due to suspension, lapse, or cancellation of a lease, license, or order that occurs after the date of actual commencement of the business.
  • Damage caused due to nuclear perils or radioactive contamination.

Advance loss of profit policy example

The Incident: XYZ Construction Pvt. Ltd., a construction company, is working on a large infrastructure project. It has a tight project completion schedule of 12 months and expects to generate a projected annual gross profit of INR 10 crore, upon project completion. Unfortunately, three months into the project, a major fire broke out on the construction site due to an electrical malfunction.

The fire caused significant damage to the structure and delayed the construction timeline by six months. The project delay results in an anticipated loss of gross profit because the completion date has been pushed back by six months. To accelerate the project and minimize further delays, the company incurs additional costs to hire extra labor, expedite the procurement of materials, and work extended hours. These extra costs are necessary to ensure the project gets back on track as soon as possible.

The Resolution: The company had wisely invested in a comprehensive ALOP Insurance Policy. The policy covers the loss of gross profit that XYZ Construction would have earned during the six-month delay, allowing the business to recover a significant portion of the lost revenue. The policy also covers the additional costs incurred by XYZ Construction to expedite the project's progress and mitigate further losses.

These costs, which include overtime pay, expedited shipping fees, and additional labor costs, are reimbursed by the insurance company, reducing the financial burden on the business. In this way, the ALOP Insurance policy proves invaluable in enabling XYZ Construction to manage the financial setbacks caused by the unforeseen fire and subsequent project delay.

Frequently Asked Question

  1. What is the indemnity period in ALOP?

The indemnity period in an ALOP insurance policy refers to the specific duration for which the policyholder will be compensated for financial losses resulting from a covered incident that causes a business interruption. This period begins from the date of the incident and extends until the time when the business returns to its normal level of operations or until the maximum duration specified in the policy is reached, whichever comes first.

2. What is the scope of ALOP policy?

The scope of an ALOP policy can include the following elements:

  • Loss of gross profit: The policy covers the loss of gross profits that the business would have earned during the interruption period if the covered incident had not occurred.
  • Standing Charges: ALOP policies often cover standing charges or fixed expenses that the business needs to pay even during the interruption.
  • Delay in Startup: ALOP policies also provide coverage for the delay in starting up a new project or business expansion due to a covered interruption.
  • Additional Costs: The policy can cover any additional expenses incurred to minimize the impact of the interruption.

3. How is the sum insured calculated in an ALOP policy?

The sum insured should be the anticipated gross profit for the indemnity period selected.


Gross Profit= Net Profit + Standing Charges

Net Profit - Business profit before taxation

Standing Charges - include fixed expenses incurred during the absence of business activity ( such as interest charges, salary & wages)

4. What does the increased cost of working mean?

When a covered event leads to a project delay, the insured business may need to take various measures to expedite the completion of the project and minimize losses. These measures can include renting alternative facilities, expediting materials or equipment, and incurring additional labor costs. These are the extra expenses incurred to maintain or accelerate the project's progress.

5. Why should you buy advance loss of profit insurance at BimaKavach?

If you are looking to purchase advance loss of profit for your business, there are several compelling reasons to buy it through BimaKavach:

1. Comprehensive marketplace: BimaKavach is one of the most comprehensive marketplaces for commercial insurance products in India. With exclusive tie-ups with almost all reputed insurance companies, most insurance products are available for side-by-side comparison and purchase on the BimaKavach website.

2. Customization: Our insurance experts will help you get your policy with extras (customization) that also fits your budget.

3. Round-the-clock customer support: BimaKavach offers round-the-clock customer service through their toll-free contact number and WhatsApp option on their website. You can simply connect with either and get your queries resolved, at any time!

4. Personalized dashboard and expert advice: Personalized dashboard is facilitated for your ease. Moreover, you can get a dedicated and seasoned expert to hand-hold you at every stage of your buying journey, claims processing, etc.

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