Have you considered the financial implications to construction clients caused by unexpected disasters? Many agents and their clients are familiar with soft cost coverage for commercial construction projects. 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.
Businesses may incur hefty expenses because of a covered loss, including the costs associated with advertising and legal fees. However, residential construction projects affected by fire, theft, vandalism or other unforeseen events can also result in unexpected expenses for the property owner. Fortunately, commercial and residential construction clients can choose to add coverage for soft costs to help mitigate their out-of-pocket expenses.
Following are a few examples of soft costs; however, these will vary as the term is not standardized among providers:
- 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
The following illustrates how adding coverage for soft costs can provide needed benefits for homeowners or others purchasing builders risk coverage for residential construction or remodeling projects:
Jane and John Doe are working with a contractor to build their dream home, so they bought builders risk insurance. When construction was 95 percent completed, trespassers broke into the unfinished home and vandalized it, causing extensive damage that is expected to significantly delay completion and closing.
In addition to the costs involved in ordering and installing replacement materials to fix the damage, Jane and John now find themselves responsible for additional expenses they didn’t anticipate, including additional interest on their construction loan, insurance and taxes and the costs of new permit and inspection fees, and additional premium to extend the policy due to the loss.
Fortunately, Jane and John added soft cost coverage to their builders risk policy, so they won’t have to worry about paying these added expenses out-of-pocket.
The US Assure Builders Risk Plan insured by Zurich includes an optional endorsement providing coverage for clients’ soft costs, helping to minimize the impact of unforeseen events. For clients, it’s comforting to know that extra expenses they incur as a result of covered losses don’t need to take a bite out of their budget. Additionally, agents can have peace of mind knowing they’ve helped clients protect their investments.
Download our free resource, Helping Builders Risk Clients Understand Soft Costs, to expand your knowledge about soft costs and help clients mitigate damages before losses occur.
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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