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What Every Homeowner Needs to Know About Ordinance or Law Insurance Coverage

As a homeowner, having proper coverage for your home is essential.  Most homeowners believe that having adequate limits will protect them in the case of a catastrophic loss.  They’ve educated themselves regarding the difference between an ACV policy versus a replacement cost policy and they sleep pretty good at night with the belief that if the unthinkable happens they’ll be okay.

Let’s walk that scenario out in real life for a moment…

You bought an older home ten years ago.  You’ve spent your weekends restoring it to pristine condition.  Everyone comments on how gorgeous it looks.  Suddenly, the worst case scenario becomes your reality.  A kitchen fire goes out-of-control and ravages your home – destroying 40% of the living space.

Naturally, you’re devastated, but you take solace in the fact that you have enough insurance to rebuild what’s been lost.

Step One:  You call your insurance company and make a claim.  They send out an adjustor to verify the damage.  “Yep,” they say, “you’ve got damage for a covered risk (fire) and we’ll issue a check for replacement cost” (because you were prudent enough to purchase replacement cost coverage).

Step Two:  Before the rebuilding can commence, the Fire Marshall has to come out to inspect the site and issue a building permit.  That’s when the bomb drops.

Many building codes and ordinances have changed since your home was built.  Your replacement cost insurance policy will replace exactly what was lost; however, without having additional coverage (called “Ordinance or Law Coverage) any additional expense required to bring your home up to current code will not be covered by your policy.

Some code/ordinance changes can be simple and not impact the cost to rebuild too greatly; whereas, other changes can have a significant impact on rebuilding costs.  For instance, in some cases even though your entire home isn’t destroyed by the fire, new building codes won’t permit you to rebuild a home with over 50% damage.  So, if this were to happen – your insurance company would pay for the damaged portion of the debris removal and rebuild – YOU would be responsible for the debris removal and rebuild for the undamaged portion of your home that the city requires to be rebuilt due to code changes.

Having Ordinance or Law Insurance coverage on your homeowner’s policy will cover any additional expenses required to rebuild your home due to any new or changed building codes, ordinances, or requirements since your home was built.

But, be careful with the fine print of this type of coverage, as well.  Some policies are written to cover laws and ordinances that are on the books at the time of loss.  Keep in mind that catastrophes are often the catalyst for code and ordinance changes.  So, let’s say you had a loss on January 1st that was something catastrophic, affecting many other homeowners in your area.  This event may prompt changes in the code that take effect on February 1st.  Let’s say you have Ordinance or Law Coverage that is limited to the codes in effect on the date of loss, you won’t be covered for any changes made subsequent to the event.  So, even though you have Ordinance or Law coverage, it won’t cover changes made after the date of loss if your policy has this type of limitation.

Get your policy out of your file cabinet, dust it off, and check to see if you’ve got this coverage.  It could make a huge difference.

Do you have an insurance agent you can trust to walk you through the maze of various policy subtleties?  If not, we’d love the opportunity to discuss your current coverage with you and offer solutions for any gaps we find.  Give us a call at 602-938-1515 to schedule an appointment.

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