As a homeowner, do you know what happens when your city decides to pass a new ordinance, forcing you to make mandatory upgrades to your property? Complying with new ordinances can be stressful, not to mention extremely costly, without the proper coverage.
The good news is that many homeowners insurance policies come with at least some ordinance or law coverage built into them. An independent insurance agent can help you get set up with the right homeowners insurance for your needs. But first, let’s take a closer look at ordinance or law coverage, how much you might need, and why.
What Is Ordinance or Law Coverage?
Ordinance or law insurance provides financial assistance if a building must be brought up to state codes. This can happen if an extreme incident damages a building or if a city or state passes new legislation requiring mandatory upgrades for homes to adhere to current codes.
Fortunately, ordinance coverage in homeowners insurance often comes standard to help you rebuild your home up to current guidelines, if necessary. Ordinance or law coverage is also sometimes referred to as building code insurance coverage or code upgrade insurance coverage.
How Does Ordinance or Law Coverage Work?
Ordinance or law coverage can reimburse you for the costs of compliance with building codes after a loss. New ordinances may require certain aspects of a building to be repaired or replaced, or they may require the entire building to be demolished and rebuilt from the ground up. Local codes vary depending on where you live, and they change all the time.
Mandatory changes required by new ordinances range from simple and cheap to complex and costly, which is why having coverage for these changes can be critical. Ordinance or law coverage can reimburse you for expenses related to mandated home updates, repairs, or rebuilding.
Does Homeowners Insurance Include Ordinance or Law Coverage?
Fortunately, ordinance or law coverage typically comes standard in home insurance policies and often does not require an additional endorsement. Your homeowners ordinance or law coverage limits are typically a percentage of your dwelling coverage, such as 10% or 25%.
So, if you have a home insurance policy with $300,000 in dwelling coverage and 10% in building code coverage, your ordinance or law coverage would be capped at $30,000.
What Does Ordinance or Law Insurance Cover?
To prevent having to pay out of pocket for mandatory upgrades to your home or to cover repairs necessary after various incidents, you need ordinance or law coverage. Several scenarios could lead to your city calling for mandatory improvements to a home. Here's a look at a few of the most common.
Scenarios when ordinance or law coverage is necessary:
- Updated weatherproofing codes: In areas prone to windstorms, new ordinances may be passed that require upgrades to home features like storm windows, shutters, or roofs. In areas prone to flooding, new local ordinances may require homes to be demolished and rebuilt on elevated foundations such as stilts.
- Updated fire safety codes: New local codes may dictate stricter fire safety measures. This could involve adding features like fire extinguishers or something more complicated, like installing sprinkler systems or fire escapes.
- Updated handicapped compliance codes: New city legislation may require you to add handicapped-compliant features to your building, such as ramps or lowered light switches.
- Updated plumbing or wiring codes: Changes in local ordinances may require you to update or upgrade features in your home for safety reasons, such as wiring or plumbing systems.
It’s wise to become familiar with the specifics of your homeowners insurance policy and how far your ordinance or law coverage extends. That way, should your city suddenly demand upgrades to your home, you’ll know if you’re covered and how much.
Coverage Gaps in Home Insurance Policies Without Ordinance or Law
In the rare case that your home insurance policy doesn't include ordinance or law coverage, you might need to supplement this protection with an endorsement. The property coverage aspect included in standard homeowners insurance policies provides replacement value coverage for certain things, but not nearly to the extent that ordinance or law coverage does.
Here are a few common areas in which homeowners policies without ordinance or law coverage can come up short:
- The cost difference for upgraded features: A standard policy might not provide the funds to make up the difference in cost between the old feature and its upgrade. If you were required to install new storm windows, standard home insurance policies would cover replacement costs equivalent to the value of your old windows, and you’d have to pay the difference for the new ones. But ordinance or law coverage does this automatically.
- The value of the undamaged portion of demolished buildings: Let’s say a bad fire causes damage to about 60% of a building, and now the whole thing needs to be demolished and rebuilt. Without ordinance or law coverage, the undamaged 40% of that building wouldn't be paid for. Ordinance or law coverage also pays for the cleanup of debris or other messes left by the undamaged portion.
- The cost of bringing undamaged portions up to code: Partially damaged buildings that are required to be brought up to new local codes are fully covered under ordinance or law coverage. Standard policies would only provide coverage for the damaged portion.
- The replacement/upgrade costs for foundations: Standard policies typically don't cover the foundations of buildings, including underground pipes and drains, etc. Ordinance or law coverage pays for replacement costs for all aspects of the building, including its foundation and related features.
Ordinance or law coverage is important to fill in the gaps left behind by standard home insurance policies lacking full repair, replacement, and upgrade protections. New local ordinances can be passed at any time, so having full coverage is well worth it. An independent insurance agent can help you add an ordinance or law insurance endorsement to your home insurance policy if it's lacking this critical coverage.
Does My Homeowners Insurance Policy Cover Mandatory Upgrades?
Most likely, yes, but to an extent. Typically, most homeowners policies have some built-in ordinance or law coverage, sometimes with a mere $10,000 limit. You'll need to consider if this limit is high enough. You can always add more coverage to your policy, and you might especially want to if you live in an area at high risk for storm damage.
How Much Does Ordinance or Law Coverage Cost?
The current national average cost of homeowners insurance is $2,466. Adding more ordinance or law coverage to your homeowners policy usually isn’t very expensive. Upgrading your coverage by $40,000 might only affect your annual premium by less than $100.
Considering how expensive some mandatory upgrades can get, this move might really make sense for you. Talk with your independent insurance agent to weigh your options for adding coverage to your home insurance policy.
Why Do I Need an Ordinance or Law Endorsement for My Business?
While building code coverage is often included in home insurance, it's not typically included in business insurance policies. If you own a business, you might want to consider adding an optional ordinance or law coverage endorsement.
Law and ordinance insurance endorsements are added to the commercial property coverage section of your business insurance, and can help reimburse you for the cost of being required to upgrade, repair, or rebuild your business up to current code. Without this coverage, you might be stuck paying for mandated property upgrades on your own.
Compare Home Insurance and Ordinance or Law Coverage Quotes with an Independent Insurance Agent
We all know how valuable your time is, so why spend it doing the hard work yourself? From homeowners insurance policies to additional ordinance or law coverage, independent insurance agents will help you determine what type of coverage makes the most sense.
They’ll help you find the right coverage at the right price. And they’re not just there at the beginning, either. If disaster strikes, your agent will be there to help walk you through the claims process and make sure you're getting the benefits you’re entitled to.
Sources
https://www.irmi.com/articles/expert-commentary/explain-ordinance-or-law-coverage-to-avoid-e-o-claims
https://www.progressive.com/answers/ordinance-or-law-coverage/
https://www.bankrate.com/insurance/homeowners-insurance/states/
