How to Calculate Insurance Cost

How to Calculate Insurance Cost.
The estimation of financial costs in an economic proposal includes the insurance cost and the financial cost itself. This post examines the costs and types of insurances and sureties of bond…

Insurance Requirements for Bid/Contract for Construction Projects

Time needed: 6 minutes.

How to calculate insurance cost in construction.
Estimators should follow the following steps to define the types and insurance cost to be included in the economic proposal of their offer:

  1. Determine types of insurance required by Client.

    The bidding documents should establish the type of insurances required by client, coverages, and the sums insured.
    The type of insurances to be included in the proposal is divided into bid bonds and those required for contract performance.
    We must take care to ensure that any other insurance required by the labor legislation in force is not missing.
    We summarize the type of insurances commonly used in the construction industry in the following figure.

  2. Verify, which are the Insurance Companies accepted by Client

    In most cases, in the bidding documents, the Purchaser lists the Insurers accepted.
    If the information does not appear in the bidding documents, we should make a written inquiry to the client.

  3. Last step

    Having defined all the above, the next step is to request quotes from different insurance companies in order to choose the most convenient one.
    When taking out a policy, it is advisable to consult a risk manager and an insurance advisor, besides your agent or broker.


1 – What is policy, coverage, and premium?

Policy: The policy is the document that gives validity to the insurance contract agreed between the insured and the insurer.
This contract specifies the requirements, rights, and obligations of the parties involved.
Coverage: The insurance coverage is the commitment assumed by the insurer to pay an indemnity to the insured (or his/her beneficiaries), in order to repair the consequences of a loss.
We should note it that coverage has a limit known as the insured capital.
Premium: The insurance premium is the price of insurances, that is, the amount of money that the insured pays periodically to the insurance company for the coverage he receives by the insured risk.
The payment of the premium in due time obliges the insurer to comply with the benefit it has agreed with the insured.

2 – What is a bid bond?

A bid bond is a temporary guarantee that is returned to the bidder if its proposal is not accepted.
They returned these bonds to unsuccessful bidders after the award of the work to the winning bidder.
The bidder charges the cost of these policies to its general expenses.

3 – What are the insurances required to execute the project?

The list of commonly required insurances is:
–Workplace accident insurance.
–Worker’s life insurance.
-Civil liability for constructions.
-Professional liability insurance.
-Contractors pollution liability (CPL)
-Business Vehicle and Commercial Auto Insurance.
-Contractors Equipment Insurance.
-Guarantee insurance to ensure compliance with the contract.
-Surety insurance to replace the retention with repair funds.
-Policy of guarantee for financial advance and/or collection.
-Construction and erection insurance during the execution of a project. All risk insurance.
-Any other insurance required by current labor legislation.

4 – What are the additional clauses required by the Client?

Generally, the Client requests that insurance policies include the following clauses:
Clause waiving subrogation by the insurer against the Client. (Known as the non-repetition clause)
Clauses that prevent the insurer from modifying and/or canceling the insurances without prior notice to the Client.
We should note that the Client regularly monitors the validity of each of the policies required in the contract document

The following post discusses the finance cost in construction projects.

How to Calculate Insurance Cost – Calculate Man Hours

Home » How to Calculate Insurance Cost.