---
title: "Need for insurance during construction"
subject: "Construction Management"
chapter: 11
key: "semester_8/construction_management:insurance-during-construction"
source: https://www.bctengineer.com/q/semester_8/construction_management/insurance-during-construction
site: BCT Engineering
---

# Need for insurance during construction

Construction Management · Chapter 11: Regulatory Requirements

- Asked in: 2070 Magh, 4 marks
- Video: [What Is Construction Insurance?](https://www.youtube.com/watch?v=SiCJrCxx83Y) — Jason Schroeder
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_8/construction_management/insurance-during-construction
- Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-11

## Question

Why is insurance necessary during construction? Explain.

## Short answer

Insurance transfers financial risk of loss to an insurer, covering physical damage, third-party liability, and worker injury. It protects the contractor from bankruptcy, fulfills contract requirements, and reduces disputes, ensuring project continuity.

## Answer

**Insurance** transfers the financial risk of loss during construction from the contractor and owner to an insurance company, in return for a premium. Construction involves many uncertain events, so insurance is necessary.

#### Reasons
1. **Covers physical loss and damage** to the works, materials and equipment from fire, flood, earthquake, landslide, theft, and storm: **Contractors' All Risk (CAR) insurance** is the common policy.
2. **Third-party liability:** pays compensation for injury or damage to the public or neighbouring property.
3. **Workers' compensation and accident insurance:** covers injury or death of workers, as required by the Labour Act and contract conditions.
4. **Protects the financial position** of the contractor, so that a big loss does not cause bankruptcy or stoppage of the project.
5. **Contract requirement:** the public procurement documents require the contractor to insure the works, equipment and workers.
6. **Reduces disputes** about who pays for the loss and keeps the project going after an accident.
7. **Confidence for lenders and the client,** which helps to get finance and bank guarantees.
8. **Other insurances:** transit (marine) insurance for materials, professional indemnity for the designer, equipment (machinery breakdown) insurance.

Example: a heavy rain washes away part of an embankment; the CAR policy pays for reinstatement, so the contractor can complete the work without a major loss.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. Insurance during construction:
   A. Prevents all accidents
   B. Transfers financial risk of loss to an insurance company for a premium
   C. Increases risk
   D. Is optional never
   Answer: B. Risk transfer for a premium. (Key point: Definition)

2. Contractors' All Risk (CAR) insurance covers:
   A. Only design errors
   B. Nothing
   C. Physical loss or damage to works, materials and equipment
   D. Only worker salary
   Answer: C. CAR covers physical loss/damage. (Key point: CAR)

3. Third-party liability pays for:
   A. Workers only
   B. Design fees
   C. Injury or damage to the public or neighbouring property
   D. Contractor profit
   Answer: C. Compensation to third parties. (Key point: Third party)

4. Insurance protects the contractor by:
   A. Making losses bigger
   B. Preventing bankruptcy or stoppage after a big loss
   C. Raising rates
   D. Cancelling the contract
   Answer: B. Protects financial position. (Key point: Financial)

## Related in Construction Management

- [Define construction management and its need](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Adefine-cm-need-knowledge) — Construction Management, chapter 1
- [Pre-qualification of contractors and its need](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Aprequalification-need) — Construction Management, chapter 5, asked 5×
- [Pre-qualification: need, advantages, disadvantages](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Aprequalification-advantages) — Construction Management, chapter 5

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