Consider the following scenario: Your dwelling (or farm building) is insured for $500,000 and you have a fire. Fortunately, the fire department gets there in time to save 50% of the structure. You are elated and begin to make plans for the repair of the structure. Then you discover that your township has improved building codes over the years. The current code requires that buildings damaged 50% or more must be demolished!
Instead of a $250,000 repair covered by insurance; you are looking at an estimated $750,000 loss. This is the cost of demolition of the undamaged portion, removal and reconstruction based on new building codes. You think you have $500,000 in coverage…..
Then the hidden “catastrophe” strikes. Your policy does not cover changes in ordinances or law and you have only $25,000 in coverage for debris removal. Furthermore, since your actual loss sustained was only $250,000 you will not get the full building limit of $500,000 in the basic property coverage. You have a total of $275,000 of coverage for an estimated $750,000 loss!
Now for the good news. There is coverage available that can respond to situations like the above scenario! The coverage is called “Ordinance or Law Coverage”.
Why is this coverage important? A basic building policy typically provides minimal, if any, coverage for changes due to ordinances or laws. Also, a basic policy usually covers only actual loss sustained with minimal coverage for debris removal. “Ordinance or Law Coverage” is intended to help address these areas.
There are three (3) coverages included in a typical “Ordinance or Law Coverage” form.
COVERAGE A: Provides coverage for the loss to the undamaged portion of the building. In the example above, this would be the $250,000 “undamaged” part of the building.
COVERAGE B: Provides coverage for the demolition and debris removal of the undamagedportion of the building. It only covers the undamaged portion, as the basic policy would typically provide debris removal of the damaged portion.
COVERAGE C: Provides coverage for increased cost of construction due to current building codes and ordinances.
Over the last 50 years, there have been an increased number of new building codes as government, at all levels, strives to make us safer. Accordingly, it is quite possible that your home or farm buildings may now be subject to new codes that did not exist when they were originally built.
Now you know what “Ordinance or Law Coverage” can do, but how do you know if you are carrying enough insurance?
Your best friend in this process will be your insurance agent. First check and see if you have “Ordinance or Law Coverage”. If you do, check and see if your home is properly valued. Work with your agent to determine what values are best for you.
Don’t wait for a loss – do it now!
Acadia Insurance is pleased to share this material with its customers. Please note, however, that nothing in this document should be construed as legal advice or the provision of professional consulting services. This material is for general informational purposes only, and while reasonable care has been utilized in compiling this information, no warranty or representation is made as to accuracy or completeness.