Construction · Insurance Term
Soft Costs
Definition
Soft costs are the extra expenses a construction project incurs because a covered loss delays completion — beyond the physical repairs — such as additional loan interest, property taxes, insurance, permit fees and professional fees. Builders risk policies can cover them if added.
In Plain English
On a project, hard costs are the physical building: materials and labor. Soft costs are the financial and professional costs around it. If a fire or storm delays completion, you keep paying interest, taxes and fees for longer.
Standard builders risk insurance covers physical damage to the work. Soft costs coverage, often paired with delay in completion coverage for lost rents or income, usually has to be added with its own limit.
These coverages often have a waiting period before payments start and a list of covered cost types. Construction lenders frequently require them.
Not sure how your policy handles this? Have us review it, or get a quote.
Example
Hypothetical and simplified: a fire at a 100-unit apartment project causes $2 million in physical damage and pushes completion back 4 months. During that time, the developer pays $160,000 in extra loan interest, $20,000 in extra architect fees and $15,000 in extra insurance and taxes. Soft costs coverage could pay these $195,000 after any waiting period, up to its limit.
Why It Matters for Texas Property Owners
Hurricane season and heavy rain can delay Texas construction projects, and after a regional storm, labor and materials may be scarce. Longer delays mean higher soft costs, so size the limit with realistic Texas timelines in mind.
What to Watch For
- List every soft cost in your project budget and compare it with what the policy covers.
- Check the waiting period before soft costs coverage begins.
- Confirm the limit covers several months of interest, taxes and fees.
- Ask whether your lender requires soft costs or delay in completion coverage.
Common Questions
Does builders risk automatically include soft costs?
Usually not. Soft costs and delay in completion coverage are commonly added by endorsement with their own limits.
What soft costs are typically covered?
It depends on the policy, but common items include extra loan interest, real estate taxes, insurance premiums, permit fees, and architect and engineering fees caused by a covered delay.
Last updated October 14, 2026 · Primesure editorial team · How We Write