Ordinance or Law Coverage Can Help Keep Your Home to Code

After a serious property loss, homeowners are grateful if they have home insurance policies with a limit sufficient to repair or replace the damaged home. However, there is an oft-overlooked, optional part of the policy known as “ordinance or law,” which addresses building codes, that may give some homeowners quite a bit of heartburn if they have not purchased the coverage. Without this added coverage, homeowners may find themselves underinsured for the cost to fully repair their home.

Local building codes are designed to ensure safety and uniformity in the construction of buildings within an area. These codes are regularly updated as improvements in construction methods are developed, in an effort to force construction companies to use the newest techniques in building. This results in a better designed and built structure, as well as increased safety for the occupants. But while all of this is undoubtedly great, it can prove to be a bit of a stumbling block for homeowners whose homes are damaged in a loss.

For example, if your house suffered from a fire that damaged approximately half of the structure, some local codes will require you demolish the rest of the house and rebuild from scratch using the most current building standards. However, your home insurance policy typically will not cover the cost to demolish or rebuild portions of your house that were not damaged by the fire. This means that even if you purchased a replacement cost limit sufficient to rebuild your house from the ground up, your insurer will not pay for the undamaged portions. Law or ordinance coverage, however, can be added to your home insurance policy to take care of this exact situation.

Another situation in which you may need law or ordinance coverage is if you need to upgrade certain building systems after a property loss. Perhaps your home did not have fire sprinklers and the current building code requires every new building to be equipped with sprinklers. You probably did not factor in the cost of sprinklers when evaluating the replacement cost of your home at the time you purchased your home insurance policy, but luckily, the additional building cost can be covered by electing ordinance and law coverage on your homeowners insurance policy.

Ordinance or law coverage can be thought of as three distinct coverages working together: increased cost of construction, increased cost of demolition, and undamaged portions of damaged dwelling. Increased cost of construction coverage is intended to cover the upgrades or changes necessary when repairing damaged property, such as in the fire sprinkler example above. Increased cost of demolition will cover the added expense to demolish undamaged portions of building. Remember, demolition of damaged portions is already covered under the regular portion of your home insurance policy, so this extra coverage will help you with demolishing the undamaged portions. Lastly, undamaged portions of damaged dwelling coverage is intended to pay for the rebuilding of the undamaged part of the home that was demolished as a result of building codes and ordinances.

As you can see, simply insuring your home for its full replacement value may not actually be sufficient to fully cover you in the event of damage to your home. This is particularly likely if you live in an older home, as you should expect to face some additional expenses to bring it up to current building codes after a property loss.

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