Contingency insurance covers unexpected risks not included in standard policies, such as political risk, natural disasters or contract breaches. It is important to avoid duplicating coverage and discuss specific risks with an insurance agent.
The term “contingency insurance” is used to describe many different types of insurance products, all relating to unexpected contingencies that may not be covered by a standard insurance policy. This can include everything from a product also known as political risk insurance to cover government contractors in special circumstances to extra home insurance designed to address issues not covered by basic insurance. Insurance agents have information about available contingency insurance products and whether they will be helpful; it’s best to discuss specific risks of concern and determine how best to cover them.
In the case of political risk insurance, contingency insurance provides coverage in the event that a contractor enters into a contract and starts work, only to find that the government funded or disallowed the contract. This also covers damages incurred when legislative changes invalidate the contract or drastically change its nature. Insurance company funds cover costs such as compensating subcontractors for having to stop working.
Owners can purchase contingency insurance for risks excluded from their regular policy. This can include policies for things like earthquakes, floods and theft, depending on how the basic policy is structured. It is not uncommon to find insurance companies excluding common risks from a regular insurance policy, forcing people to purchase contingency insurance to cover them. For example, people who buy homeowners insurance in regions where hurricanes occur frequently have flood and storm damage excluded from their policies.
Contingency insurance can also be a general form of commercial insurance to cover incidents that may arise in the course of handling contracts. This includes not just government contracts, but all contracts. If a contract has to be breached, insurance can pay for damages and provide coverage for specific risks. This is designed to prevent a company from taking major damage when a contract is terminated or fails to perform as expected. Insurance can also kick in when a primary insurance provider refuses to pay.
With contingency insurance purchases, it is important to avoid replication. If a homeowner’s policy covers theft, for example, there is no reason to purchase contingency theft insurance. In cases where the base policy does not provide sufficient coverage, it may be possible to rewrite it or purchase supplemental insurance to ensure that sufficient funds are available in the event of a catastrophe.
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