Home Gap Coverage
Protecting buyers and builders from the unexpected cost delta between quoted and actual prefab/ADU installation costs—just like gap insurance for your car, but for your home project.
The Auto Gap Analogy
If you understand auto gap insurance, you already understand Home Gap Coverage. Let's compare:
🚗 Auto Gap Insurance
- The Problem: You owe $25,000 on your car loan, but after an accident, insurance only pays $20,000 (actual cash value)
- The Gap: $5,000 you still owe the lender
- The Solution: Gap insurance covers the $5,000 difference
- Trigger: Total loss of vehicle
- Who Benefits: Car buyer who financed their purchase
🏠 Home Gap Coverage
- The Problem: Your ADU was quoted at $135,000, but unforeseen site issues push actual costs to $165,000
- The Gap: $30,000 in unexpected costs
- The Solution: Home Gap Coverage covers the difference (up to policy limits)
- Trigger: Fortuitous events during installation
- Who Benefits: Homeowner and/or General Contractor
How Home Gap Coverage Works
The Cost Gap Explained
*Subject to policy limits, deductibles, and covered peril requirements
Step 1: Quote & Bind
At project start, the expected installation cost is documented. This becomes the "baseline" for gap calculation. Premium is based on project value and risk factors.
Step 2: Installation Begins
The General Contractor proceeds with prefab/ADU installation. If fortuitous events occur (site issues, supply shocks, etc.), costs may exceed the baseline.
Step 3: Gap Claim
If actual costs exceed expected costs due to covered perils, a claim is filed. After verification, the gap amount (minus deductible) is paid to the policyholder.
Covered Fortuitous Events
Home Gap Coverage applies only to fortuitous (accidental, unforeseen) events—not speculative risks or poor planning.
🪨 Unforeseen Site Conditions
Discovery of rock, unstable soil, or underground obstacles requiring additional foundation work not visible during initial site survey.
Expected Foundation: $18,000
Actual (rock removal required): $32,000
Gap Covered: $14,000
📦 Supply Chain Disruptions
Sudden material shortages or price spikes due to unforeseen events (natural disasters, factory closures, shipping disruptions).
Quoted Materials: $45,000
Actual (shortage premium): $58,000
Gap Covered: $13,000
🔌 Utility Connection Complications
Unexpected utility infrastructure issues discovered during connection (damaged lines, inadequate capacity, required upgrades).
Expected Utility Work: $8,000
Actual (line replacement): $19,000
Gap Covered: $11,000
🌧️ Weather-Related Delays
Abnormal weather events causing project delays and additional labor/equipment costs beyond reasonable planning buffers.
Expected Timeline Cost: $12,000
Actual (30-day delay): $22,000
Gap Covered: $10,000
📜 Regulatory Surprises
New code requirements or permit conditions imposed after project approval that require additional work or modifications.
Expected Permits/Code: $5,000
Actual (new fire code): $12,000
Gap Covered: $7,000
🏭 Manufacturing Defects
Prefab unit arrives with defects requiring on-site remediation not covered by manufacturer warranty.
Expected Install: $25,000
Actual (defect repair): $34,000
Gap Covered: $9,000
What's NOT Covered
Home Gap Coverage insures fortuitous risk only. The following are expressly excluded:
❌ Speculative Risk
- Market price fluctuations
- Investment losses
- Property value changes
- Interest rate changes
❌ Poor Planning
- Inadequate initial estimates
- Scope creep by owner
- Upgrades or change orders
- Known site conditions
❌ Intentional Acts
- Fraud or misrepresentation
- Contractor negligence
- Code violations
- Unlicensed work
Sample Policy Slip
Below is a sample Home Gap Coverage policy slip in Lloyd's MRC format demonstrating typical terms and conditions.
INTEGRAL MASS CAPTIVE INSURANCE
HOME GAP COVERAGE POLICY SLIP • LLOYD'S MARKET REFORM CONTRACT FORMAT
Policy Identification
Insured Parties
[Property Address]
Phoenix, AZ 85XXX
Arizona ROC# XXXXXX
[GC Address]
Project Details
Coverage Details
- Unforeseen subsurface conditions (rock, unstable soil, underground obstacles)
- Supply chain disruptions due to force majeure events
- Utility infrastructure complications discovered during connection
- Abnormal weather events exceeding historical norms
- Regulatory changes imposed after permit approval
- Manufacturing defects in prefab unit not covered by warranty
- Third-party delays (utility companies, inspectors) beyond reasonable timeframes
Exclusions
- Speculative risk: market fluctuations, investment losses, property value changes
- Scope changes, upgrades, or owner-requested modifications
- Costs arising from inadequate initial estimates or known conditions
- Contractor negligence, fraud, or intentional acts
- Work performed by unlicensed contractors or without proper permits
- Delays caused by owner decisions or financing issues
- Normal weather conditions and seasonal variations
- Pre-existing site conditions disclosed in survey
Premium Calculation
Claims Process
- Notification: Report potential gap event within 48 hours of discovery
- Documentation: Submit original quote, change documentation, and evidence of fortuitous cause within 10 business days
- Investigation: Adjuster site visit within 5 business days for claims over $10,000
- Determination: Coverage decision within 15 business days of complete documentation
- Payment: Approved claims paid within 10 business days of determination
Special Conditions
- Baseline cost must be established via written contract before coverage inception
- GC must maintain valid Arizona ROC license throughout project
- All work must be performed under valid building permits
- Homeowner must provide access for pre-installation site assessment
- Coverage terminates 30 days after certificate of occupancy or project abandonment
- Subrogation rights reserved against negligent third parties
This policy slip is a conceptual document for demonstration purposes. It does not represent an actual insurance contract or binding coverage. All terms, conditions, and premiums are illustrative. Actual policies would be subject to underwriting review and regulatory approval.
This captive insurance model covers only fortuitous risk. Speculative risk is expressly excluded.
Interested in Home Gap Coverage?
Learn more about our captive insurance model and how it protects prefab housing installations across Arizona.