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Ordinance and Law Insurance – When replacement cost is not enough

Special Report:  When is replacement cost not enough?

If you think that because you have replacement cost coverage on the dwelling on your home insurance policy, then you have nothing to worry about, you could be mistaken.  Replacement cost coverage says that the company will replace the property on the same premises with other property of comparable material and quality used for the same purposes, up to the coverage limits.  Some policies may provide an additional amount over the coverage limit if necessary at the time of the claim.

What is not covered by replacement cost is the additional cost of construction that is necessary in order to comply with local law ordinance, statues’ or building codes.  These additional costs will be your expense, unless you purchase ordinance and law insurance coverage.   My home was built in 2013-2014 and it is already out of compliance with some building codes and there would be additional costs to me if I needed to rebuild my home.  Older homes may have hundreds if not thousands of changes necessary to bring the building up to today’s building codes.  It is something that you do not think about unless you are in the building industry or the insurance industry.

Ordinance and Law coverage has three components:

Coverage A: Coverage for the loss to the undamaged portion of the structure.

An example would be:  Fire damages 51% of your home, but the county says that the entire home needs to come down and be rebuilt.  Well there is no damage to 49% of the home and the 49% of the building would not need to be rebuilt except for the fact of the building code.   Since this 49% was not damaged by a covered cause of loss the insurance company will not pay to rebuild it unless you have this coverage.

Coverage B:  Provide coverage for the increased demolition cost

An example would be because we had to demolish this 49% of the building that was not damaged, but the code required the owner to remove it now the insured has experienced another $30,000 in demolition costs.  This additional $30,000 would not be paid without this coverage since the 49% was not damaged by a covered cause of loss.

Coverage C: Provides coverage for the increased cost of construction.

An example of this is the fact that sprinklers need to be in place or the building needs to be ADA compliance which it was not required to be at the time or original construction.    Additional increased costs of construction could be simple things like:

  • Rewiring the electrical system
  • Installing hard wired smoke detectors
  • Hurricane-resistant roof or Windows
  • Wrapping your hot water pipes
  • Installing additional or deeper footers
  • Wrapping your hot water heater

Building codes are constantly changing, so you may be in compliance today and out of compliance tomorrow.

Everyone that owns a property whether it is your home, a rental property or a commercial property needs to consider adding this coverage.  Older buildings generally need a minimum of 20-25% of the dwelling amount; newer buildings may only need 10-20% of coverage.

Give the insurance professionals at Huff insurance a call today to discuss your insurance coverage.

Huff Insurance is a full service Independent Insurance Agent We have been dedicated to Protecting Lifestyles™ since 1960. We offer a full array of Personal Insurance, Commercial Insurance and Life Insurance & Health Insurance products. Call us at 410-647-111

Nancy Nicklow, Huff Insurance

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