Contractor's All Risk (CAR) sum insured & average clause calculator
Construction finance lenders mandate a Contractor's All Risk (CAR) policy assigned to the bank before releasing stage disbursements. Under-declaring the contract value by even 15% or 20% triggers the policy's Average Clause during a site claim, cutting your payout in the same proportion before deducting the compulsory excess. This calculator sizes Section 1 Material Damage, Section 2 Third-Party Liability (TPL) and 18% GST.
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How this is calculated
Section 1 SI = (Contract + Principal Materials) × (1 + Escalation % + Debris %) + Surrounding Property + CPM
Payable Claim = max(0, Loss × min(1, Declared SI ÷ Full Section 1 SI) − Policy Excess)
- Section 1 (Material Damage): Must represent 100% of the completely erected value of the contract works, including materials or items supplied free of cost by the principal, plus any escalation (10% to 25%) and debris removal (5% to 10%) add-ons.
- Section 2 (Third-Party Liability): Covers legal liability for accidental bodily injury or property damage to third parties around the construction site, typically set at 10% to 20% of the contract value.
- Condition of Average (Under-Insurance): If the sum insured declared in the policy is less than the sum that ought to be insured (100% replacement value), the insured is considered their own insurer for the difference and bears a rateable proportion of the loss before the deductible is subtracted.
- GST: 18% GST applies to commercial engineering insurance premiums.
Not a credit decision or tax/legal opinion. Figures are indicative and based on your inputs; confirm final sanction terms, tax applicability and statutory notifications with your lender, insurer or Chartered Accountant.
Questions people ask
How is Section 1 Sum Insured calculated in a CAR policy?
Under standard engineering tariff rules, Section 1 Sum Insured must equal the full replacement cost at completion: 100% of the construction contract value plus principal-supplied materials, plus optional escalation (10% to 25%), debris removal (5% to 10%), surrounding property and Construction Plant & Machinery (CPM).
What is the Average Clause in CAR insurance?
If the declared Section 1 Sum Insured is only 80% of the actual replacement cost on the day of loss, the insurer pays only 80% of any admissible claim before subtracting the policy excess.
Why do construction finance lenders insist on CAR insurance?
Because fire, monsoon flooding, excavation collapse or third-party damage can stall a project mid-construction. Lenders require a bank-clause (loss-payee) endorsement on the CAR policy covering 100% of project construction cost.
Starting excavation or drawing construction finance?
We help builders and civil contractors structure construction finance (₹5 crore to ₹500 crore) alongside lender-compliant CAR policies.
CAR policy wordings, tariff rates, deductibles and add-on limits vary by insurer, soil/flood zone and project type. Confirm terms in the insurer's quote. Lenders, regulators and government offices apply their own rules and may round or calculate differently; their figures prevail. Biz Corp Solutions arranges funding through partner banks, NBFCs and financial institutions, and lenders decide sanction, rates and terms. Last reviewed 23 October 2026.