If your answer to the question “What is ordinance or law coverage?” is something like “Um, I have no idea,” take solace in knowing you are in good company.
Even if you may have heard of ordinance or law insurance coverage and have a vague idea of what it is used for, you may not understand how it works, much less whether or not you need it.
The coverage is an add-on, known as an endorsement or rider, that is appended to a standard policy. An ordinance or law endorsement covers a home or dwelling structure or is added to a commercial building insurance policy.
The Dilemma: What Ordinance or Law Coverage is For
Say there’s a weather event that damages most of your home. You thought you were covered because your homeowners policy covers that kind of event. But then you find out that a number of local or state laws have been put into place since the time your home was built. That means there are now additional costs for making repairs and upgrades.
- An ordinance requires an upgrade in windows;
- A clean-air ordinance indicates you’re going to need to replace your HVAC with a more environmentally friendly system;
- Building codes have changed and your home must be brought in line during a rebuild or repair, such as adding fire sprinklers or upgrading the home’s foundation.
You will need to pay the difference between your standard homeowners policy coverage and however much it costs to bring your home up to code.
This is where an ordinance or law rider can save you a lot of money.
Code Changes That are Covered by Ordinance or Law Insurance
Codes typically involve construction methods and materials, including plumbing and wiring systems. The purpose of building regulations put into place by states and municipalities is to ensure safety and improve environmental practices. If you live in an area prone to hurricanes, earthquakes and other damaging natural events, codes changes may be put into place to assure homes are able to withstand the events.
If your insurance company holds something as a covered loss, ordinance or law coverage would help with your increased costs associated with complying with newer ordinances.
Ordinance or law coverage helps pay for:
- Demolition – Local building codes may call for an entire structure to be demolished, even if a stated percentage of the home is not damaged.
- New disabled compliance codes for commercial buildings – It is common to have new code requirements for assistive additions to a structure to accommodate disabled individuals.
- Increase in construction costs – A standard homeowners insurance policy typically has benefit limits based on replacement expenses estimated at the time of the home’s purchase.
- Costs related to new weatherproofing codes – Code changes in areas prone to severe windstorms, for instance, may require upgrades like storm windows or roofs. Flood-prone areas may have new codes that relate to such events, such as elevated foundations.
- Fire safety expenses – Ordinances calling for stricter fire safety measures can mean purchasing something less expensive, like fire extinguishers, or pricey such as a whole-house sprinkler system.
- Increased plumbing and wiring requirements – For improved safety, new codes may require you to make changes to your home’s plumbing or wiring system.
Ordinance or Law Coverage Endorsements Address Three Areas
Standard homeowners insurance does not typically cover what an ordinance or law rider does. The three areas covered by an ordinance or law coverage endorsement include:
Coverage A – Loss to the undamaged part of the building.
There are times when the entire home or structure is not damaged from a covered loss. If local building regulations deem the home significantly damaged, the portion of the home that is not damaged has had a loss of value. Depending on the local building code, you could be required to demolish the entire building including the undamaged part. Coverage A covers the loss where standard insurance may not.
Coverage B – Demolition expenses for the undamaged portion.
If you must demolish your home, Coverage B covers the demolition as well as removal of debris from the undamaged portion of the building. Expenses might include handling of hazardous materials and so forth.
Coverage C – Extra costs related to construction.
If you are now required to upgrade particular systems, Coverage C will help. These costs are excluded from standard home insurance coverage.
A Post-Loss Option
There is even a coverage option in the event codes are changed or added between the time of loss and the start of construction. Only added to ordinance or law coverage in 2017, this option recognizes there is sometimes the need to adjust a claim due to the length of time it can take from filing the original claim to when demolition or construction actually begin.
How Much Does Ordinance or Law Coverage Cost?
Relative to how much you would have to pay if your home is damaged, purchasing ordinance and low coverage is fairly low cost and could have the possibility of helping you save thousands. Cost of the rider is fairly reasonable. On average and depending on where you live, cost of adding the rider to a standard policy is $50 to $65 per year.
Do You Need Ordinance or Law Coverage?
So, do you really need to purchase an endorsement for ordinance or law coverage? Cost is relatively low and isn’t likely to bust your budget. If your home is older, adding this endorsement is a wise decision.
Whichever decision you make be sure to:
- Review your standard home insurance to see what it actually covers and what the limits are.
- Ask your insurance representative or agent to go over your standard policy and ask for recommendations based on your needs, your home.
- Get quotes online from two or three other providers before you decide to stay with your current insurance company.