When clients insured with a comprehensive builders risk insurance policy incur damage due to a covered cause of loss, they may still face a multitude of other expenses that aren’t typically included in standard builders risk policies. These out-of-pocket expenses — or soft costs — can add up quickly, leaving clients in an uncertain financial position.
Some clients find it challenging to grasp exactly what is defined as a soft cost, what protection is available, and how that protection benefits their financial security.
Soft costs refer to expenses incurred during construction that are not associated with labor or building materials, but that can nevertheless be directly attributed to a covered loss, such as:
- Advertising and promotional expenses
- Interest on construction loans
- Architects, engineers and consultants fees
- Real estate and property tax assessments
- Commissions or fees for lease renegotiation
- Insurance premiums
- Legal and accounting fees
- License and permit fees
While the items provided in the list above are generally covered as soft costs, each client’s policy terms will ultimately define soft cost coverage.
To paint the picture for clients as to how soft cost insurance coverage can be of value should a loss occur, consider the following example:
Joanne and Steve own a chain of deli restaurants. They recently purchased a builders risk insurance policy for the construction of their newest location, scheduled to open for business in a few days.
Construction is nearly complete, then heavy thunderstorms roll through the area. Lightning struck their new deli and set the structure ablaze, caused significant damage and set the project back a minimum of three months.
During the claims process, Joanne and Steve provide their agent with a detailed account of the damaged and destroyed materials and equipment, along with a list of additional expenses that occurred as a direct result of the storm damage, including:
- Added months of interest on the construction loan
- Reprinting of promotional opening banners
- Advertising fees to run a revised announcement of the new opening date
- Architect, engineer and consultant fees to revise plans
- City and county permit fees and re-inspection fees
Joanne and Steve’s agent reviewed the builders risk policy to determine whether or not these expenses will be covered. If soft costs was not specified in the policy, the expenses will be excluded, even though it results from the damage caused by the lightning strike.
Fortunately, Joanne and Steve added soft costs coverage to their builders risk insurance policy for the construction of their new deli. Because the additional itemized expenses were covered by builders risk soft cost coverage, they were covered for the period of time after the construction delay passed the deductible time period.
With soft costs coverage endorsed to a builders risk insurance policy, clients undergoing construction on residential or commercial projects can enjoy added peace of mind. As their agent, offering the coverage also demonstrates your expertise and foresight.
To learn more about soft costs and mitigating clients’ out-of-pocket expenses, download Helping Builders Risk Clients Understand Soft Costs.
This is intended as a general description of certain types of insurance and services available to qualified customers. Your policy is the contract that specifically and fully describes your coverage. The description of the policy provisions gives a broad overview of coverages and does not revise or amend the policy.
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