Ordinance or Law Insurance - Essential part of home insurance
With building codes constantly changing Ordinance or Law Insurance is almost a must for every home owner and business
It was a devastating fire, but for any family suddenly evicted from their house by a fire it always is. For Jack this fire was even more devastating because since he bought the 1850's Victorian 10 years ago he had been meticulously restoring the beautiful home room by room.
Now, early on a crisp November morning he stood staring at a smoldering wreck. 10 years of weekends and vacations reduced to two well painted and custom designed cedar shingle sided walls and two smoking, burned walls and a partially caved in roof. The beautiful Cupola he just finished restoring was now on the first floor where the kitchen pantry used to be and where his dog used to sleep. Now, with his dog by his side he glances up and notices the chimney that caught Jack's eye when he first saw the house was still standing; a small consolation for what lies before him. As the fire trucks slowly retreat Jack now has an uncomfortable thought- what is covered under my homeowners insurance policy? And so the process begins.
For most homeowners a fire is covered under their home insurance policy and there really is no issue in coverage. However, for many homeowners like Jack who own an older home coverage for fire damage or any other damage isn't as simple. The problem lies in town and city Ordinance laws and the difference between what was the law at the time the home was built and when the home needs to be rebuilt because of a devastating fire. Unfortunately, most basic home insurance policies only provide limited Ordinance or Law coverage and once that coverage is gone you'll have to spend the coverage to rebuild your home on new building code requirements.
Ordinance and Building Code Law - What your homeowners insurance won't cover
Because of their character and craftsmanship older homes such as Jack's Victorian are a beautiful investment. Since 1850, when Jack's home was built there have been numerous building code and Ordinance law changes both state and local. The issue lies in the small changes in how buildings can now be built. For instance, windows are now required to be a certain distance from the floor. Years ago this was never a requirement and so homes could have windows from floor to roof. Then children started to get injured so building codes began to require windows to be raised.
There is also an old saying "They don't build homes like they used to- thank god!" Older homes were sometimes built with the idea of conserving material. Balloon framing and nail conservation techniques were just a couple of building styles that years ago builders used. Some of these building techniques were discovered to have serious flaws in both safety and stability.
So what does that mean to me today if I own an older home? Well, if you have home insurance it provides an amount it will pay to replace that home whether it is partially damaged or totally damaged from a covered peril. In most basic home insurance policies this coverage does not cover the expense to rebuild your home under current building and ordinance codes. Sometimes this is okay since the changes are not enough to rob enough out of your coverage to leave you less money to rebuild your home as it once was. However, if the new building codes require, for example, a full basement as before you had only a crawl space, then you may have a problem. Some basic homeowner insurance policies provide a limited amount of Ordinance or Law coverage, but this is usually only about 10% of the Dwelling coverage. For instance, if you had $300,000 in dwelling coverage you would have $30,000 in additional Ordinance of Law coverage if you needed it. However, let's say to replace the crawl space with a full basement required an additional $50,000 you would have to use $20,000 of your $300,000 coverage to build the basement.
No matter the age of your home A partial Loss Could mean a total loss - does your home insurance policy cover it?
What many people do not realize is some cities and towns require partially damaged homes to be completely torn down before they can be rebuilt. your home insurance policy, unless specifically stated will only cover for the cost to rebuild the part of your home that was damaged. Going back to Jack's Victorian home we see that Jack lost probably 50% of the home. After an assessment it is discovered that 45% of the home is lost and the remaining 55% can be saved. If Jack's policy covered the property for $500,000 then he would have $225,000 (45% of $500,000) to rebuild the damaged part of the home.
Here's were things can change. In Jack's town the ordinance and building codes require any home over 40% damage to be completely demolished and rebuilt. To demolish the remaining 55% of the home and remove the debris will cost Jack an additional $80,000. Jack does not have any special limit for Ordinance or Law coverage so the additional $80,000 to demolish and remove debris will have to come from his $225,000 provided by his insurance policy. Remember, he only received $225,000 because the public adjuster determined the property suffered a 45% loss and so the insurance company paid out only 45% of the dwelling coverage. The home insurance policy only covers covered perils such as fire- it does not necessarily cover loss due to unforeseen laws that require the removal of any remaining portion of a building.
After the dust clears Jack is looking at $145,000 ($500,000 x 45% - $80,000 ordinance required demolish) to replace a $500,000 1850's Victorian.
LOCAL INSURANCE AGENTS
- Offers a choice of products & services
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protect yourself and your real estate investment- carry some level of ordinance or law coverage
As a home owner it's up to you to know your local building and ordinance laws. Once you understand them you can better determine the amount of Ordinance or Law insurance coverage you need. As said before, most home insurance policies provide a limited amount of Ordinance or Law coverage. Talk to your agent to find out if you have this coverage and then discuss with him or her about increasing this coverage to 25%, or even 50% of your dwelling coverage amount. Remember, This is in addition to your dwelling coverage amount. Insurance companies just simply use the dwelling coverage limit to calculate Ordinance of Law coverage. For example, if you have $500,000 in dwelling coverage and want 50% Ordinance or Law coverage then it would be $250,000 in addition to the $500,000 for Ordinance related costs.