What is Contingency Insurance?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 06 November 2019
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The term “contingency insurance” is used to describe a number of different kinds of insurance products, all related to unexpected contingencies that might 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 insurance for a home, designed to address issues not covered by the basic insurance. Insurance agents have information about the contingency insurance products available and whether they will be useful; it is 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 lands a contract and starts work, only to find that the government has defunded or deauthorized the contract. This also covers damages incurred when legislative changes happen to render the contract void or dramatically change its nature. The funds from the insurance company cover costs like compensating subcontractors for having to stop work.


Homeowners 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 base policy is structured. It is not uncommon to find insurance companies excluding common risks from a regular insurance policy, forcing people to buy contingency insurance to get them covered. For example, people buying homeowners insurance in regions where hurricanes occur frequently often have flood and storm damage excluded from their policies.

Contingency insurance can also be a form of general business insurance to cover incidents that may come up in the course of handling contracts. This includes not just government contracts, but all contracts. If a contract has to be broken, the insurance can pay the damages, and it may provide coverage for specific named risks. This is designed to prevent a business from incurring heavy damages when a contract falls through or fails to be performed as expected. The insurance can also kick in when a primary insurance provider refuses to pay out.

With purchases of contingency insurance, avoidance of replication is important. If a homeowner's policy covers theft, for instance, there is no reason to buy theft contingency insurance. In cases where the base policy does not offer enough coverage, it may be possible to rewrite the policy or purchase supplemental insurance to make sure enough funds will be available in the event of a catastrophe.


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