What are soft costs in builder's risk insurance?

Complete Guide to Soft Costs in Builder's Risk Insurance

Why This Question Matters for Colorado and Utah Residents

Construction projects in Colorado and Utah are uniquely affected by unpredictable weather, regulatory delays, and supply chain challenges. These factors often lead to costly project delays. Soft costs—expenses that aren't tied to materials or labor, like architect fees or loan interest—can add up quickly during these delays. Builder's risk policies can cover these hidden risks, but only if you select this coverage.

• Regional Delays Are Common: Hail, snow, and wildfire seasons frequently disrupt Colorado and Utah projects, causing average delays of over 45 days per project.
• Financial Exposures Go Beyond Physical Damage: Non-construction expenses like lost rental income, ongoing permit fees, and continued loan interest can escalate during rebuilds.
• Incomplete Coverage Leaves Owners Vulnerable: Without soft cost protection, many builders face out-of-pocket costs exceeding $100,000 for even moderate project delays.

What Most People Get Wrong

Many assume builder's risk insurance automatically covers all expenses from a construction delay. In reality, standard policies usually exclude soft costs unless specifically added. A second misconception is that soft costs are insignificant compared to physical (hard) costs—but in Colorado's and Utah's recent large hail events, business interruption and professional fees often rivaled the cost of rebuilding damaged property.

Finally, it's common to overlook how local permit requirements and utility connection delays can lead to weeks or months of additional interest and fixed expenses that would not be reimbursed without the right coverage.

The Complete Picture

Soft costs refer to the indirect, non-physical expenses that arise from a covered loss resulting in project delays. Common examples include interest on construction loans, additional architectural or engineering fees, legal expenses, real estate taxes, and lost rental income. In Colorado and Utah, projects face heightened risk due to severe weather, regulatory reviews, and the ongoing skilled labor shortage—making delay-related costs more likely and more expensive than the national average.

If your builder's risk policy includes a soft costs endorsement, it can reimburse you for these expenses, providing true financial protection beyond just the physical site. Soft costs are usually only covered if specifically selected when setting up your policy, and require a careful estimate of expected exposure. For Colorado and Utah projects, experts recommend working with a local agent to ensure the right limits and endorsements are in place, given our region’s history of costly construction delays and high demand for skilled trades following seasonal weather events.

Making the Right Decision for Colorado and Utah Residents

Question 1: What types of project delays are most likely in my region?

Colorado and Utah construction sites regularly experience schedule setbacks from extreme weather (hail, snow, wildfires), labor shortages, and extended permitting timelines.

• Have you considered how a June hailstorm or a January snow event might halt work?
• Are you building in a municipality known for strict or slow regulatory reviews?

Question 2: How much could soft costs actually add up to if my project is delayed?

Calculate ongoing expenses like monthly interest, permit renewals, insurance premiums, design fees, and anticipated lost rents. For a $2M project in Fort Collins or Salt Lake City, even a 30-day delay can mean $25,000–$100,000 in additional non-construction costs.

Question 3: Is soft cost coverage built into my builder’s risk policy, or do I need to add it?

Review your policy’s declarations and endorsements. If unsure, ask your local agent to walk you through what’s covered—and what isn’t. In most CO and UT builder’s risk policies, soft costs require a specific add-on and declared limits.