Although most insurance policyholders expect insurance companies to pay for construction costs and materials if property damage occurs, many also assume that an insurance policy will pay for other costs associated with reconstruction. These expenses, known as "soft costs," can dramatically impact the total cost of repair.
Definition
Soft costs are expenses that are indirectly associated with the repair or rebuilding of a property. They are typically a result of a construction delay caused by damage to the property.
Examples
Examples of soft costs include license and permit fees, appraisal fees, legal costs, labor costs, taxes and architectural and engineering fees.
Insurance Coverage
Most companies do not cover soft costs. Those that do typically cover them on a reimbursement basis, so the property owner has to pay for these costs upfront.
Impact
Soft costs can make up 30 percent of the cost of repairing or rebuilding a property.
Protection Against Soft Costs
Before purchasing a property insurance policy, find out which soft costs (if any) are covered. Paying a bit extra for soft cost coverage can help you avoid large out-of-pocket expenses if property damage occurs.
