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Delay in Start-Up (DSU) Insurance: When Do You Need It?

Protecting your revenue when construction projects are delayed due to insured damage.

9 min read

Key Takeaways

  • DSU covers financial losses when projects are delayed due to insured physical damage
  • Standard CAR/EAR policies exclude consequential losses—DSU fills this gap
  • Essential for revenue-generating projects like power plants, hotels, manufacturing facilities
  • Coverage should include gross profit, fixed costs, and financing expenses
  • Indemnity period should extend beyond expected project completion

What is DSU Insurance?

Delay in Start-Up (DSU) insurance—also known as Advanced Loss of Profits (ALOP)—covers the financial losses that occur when a construction project is delayed due to physical damage that would be covered under a CAR or EAR policy.

Think of it this way: your CAR policy covers the cost of repairing storm damage to your partially constructed hotel. But what about the three months of lost revenue while repairs are completed? What about the ongoing debt service you must pay even though the hotel isn't generating income? That's what DSU covers.

Critical Gap in Standard Policies

Standard CAR/EAR policies explicitly exclude consequential losses, including loss of revenue, financing costs, and penalties for late delivery. Without DSU, these losses are entirely uninsured.

What Does DSU Insurance Cover?

DSU policies typically cover three main categories of financial loss:

Gross Profit

The revenue you would have earned minus variable costs. This is the primary component of most DSU claims.

Standing Charges

Fixed costs that continue during the delay period—loan interest, property taxes, management salaries, insurance premiums.

Increased Cost of Working

Extra expenses incurred to minimize the delay—overtime, expedited shipping, temporary facilities.

Who Needs DSU Insurance?

DSU is essential for any project where delay will result in significant financial impact:

Revenue-Generating Projects

  • Power plants: Every day of delay means lost electricity sales
  • Hotels and resorts: Missed bookings, especially around peak seasons
  • Manufacturing facilities: Production revenue and customer contracts at risk
  • Commercial buildings: Rental income delay, tenant penalties
  • Toll roads and infrastructure: Toll revenue, concession period impacts

Financed Projects

Projects with significant debt service requirements need DSU regardless of revenue timing. Loan payments continue during delays, and lenders often require DSU as a condition of financing.

Projects with Contractual Penalties

If your construction contract includes liquidated damages for late delivery, DSU can cover these penalties (subject to policy terms).

How DSU Claims Work

DSU only responds when there is an underlying covered loss under the CAR/EAR policy:

  1. Physical damage occurs that is covered under CAR/EAR
  2. Damage causes project delay beyond the planned completion date
  3. Delay results in financial loss (lost revenue, ongoing costs)
  4. DSU pays for the financial loss during the indemnity period

Important: DSU does not cover delays from non-physical causes like labor disputes, supply chain issues, or design changes—only delays caused by insured physical damage.

Calculating DSU Coverage Limits

Determining adequate DSU limits requires careful analysis:

Step 1: Estimate Monthly Financial Impact

  • Projected monthly gross profit once operational
  • Monthly fixed costs (financing, salaries, taxes, insurance)
  • Any contractual penalties for delay

Step 2: Determine Maximum Indemnity Period

The indemnity period should reflect the worst-case repair scenario. Consider:

  • Time to replace the most critical/long-lead equipment
  • Seasonal factors (monsoon, winter) affecting reconstruction
  • Supply chain constraints in your location
  • Regulatory approvals needed to resume

Typical indemnity periods range from 12 to 36 months, depending on project complexity.

Step 3: Calculate Sum Insured

Sum Insured = Monthly Financial Impact × Maximum Indemnity Period

Example: A power plant with projected monthly revenue of $5M, fixed costs of $1M/month, and maximum repair time of 18 months would need: ($5M + $1M) × 18 = $108M DSU sum insured

Understanding the Time Deductible

DSU policies include a time deductible (also called waiting period or time excess)—the initial period of delay that is not covered. Common time deductibles are 30, 60, or 90 days.

This means if your project is delayed by 120 days and you have a 30-day time deductible, DSU covers 90 days of financial loss.

Shorter time deductibles mean higher premiums but better protection. The right balance depends on your cash flow resilience and risk tolerance.

Common DSU Issues to Avoid

  • Underestimating indemnity period: If repairs take longer than your indemnity period, losses beyond that point are uninsured.
  • Mismatched policy dates: DSU coverage should align with CAR/EAR dates and extend beyond expected completion.
  • Inadequate sum insured: Inflation in revenues or costs can render original limits insufficient.
  • Documentation gaps: Keep detailed financial projections and business plans to support claims.

DSU vs. Business Interruption Insurance

DSU and business interruption (BI) insurance are related but different:

  • DSU: Covers delays during construction, before the business is operational
  • BI: Covers interruptions to an existing, operational business

Once your project is complete and operational, you would transition from DSU protection to standard business interruption coverage under a property policy.

Assess Your DSU Needs

Our advisors can help you calculate appropriate DSU limits and ensure your coverage properly protects your project's financial interests.

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