Ordinance or law coverage is a crucial yet often overlooked part of property insurance. It provides financial protection when a property must be rebuilt or repaired to comply with updated building codes or local ordinances. This coverage is particularly beneficial for older properties, as building regulations constantly evolve to improve safety, energy efficiency, and structural integrity.
Understanding how ordinance or law coverage works can help homeowners and business owners avoid unexpected expenses when updating their properties after a covered loss.
What Is Ordinance or Law Coverage?
Definition of Ordinance or Law Coverage
Ordinance or law coverage is an optional add-on to standard property insurance policies. It helps cover additional costs associated with bringing a damaged or destroyed property up to current building codes or legal requirements after an insured event like fire, windstorm, or other covered perils.
Many standard property insurance policies only cover the cost of restoring a building to its previous condition. However, if local laws require additional upgrades-such as installing fire sprinklers, reinforcing foundations, or using hurricane-resistant materials-these extra costs may not be covered without ordinance or law coverage.
Why Is Ordinance or Law Coverage Important?
✔ Covers Code Compliance Costs – Helps pay for necessary upgrades to meet current building codes.
✔ Protects Against Partial Losses – Covers demolition and rebuilding expenses if only a part of the structure is damaged.
✔ Prevents Out-of-Pocket Expenses – Saves property owners from unexpected financial burdens due to legal requirements.
✔ Essential for Older Buildings – Older properties are more likely to require significant upgrades after a disaster.
Without ordinance or law coverage, property owners might have to pay thousands of dollars out of pocket to bring their buildings up to code.
How Does Ordinance or Law Coverage Work?
When a covered event damages a property, a local building inspector may require updates before issuing a rebuilding permit. This is where ordinance or law coverage comes into play.
Most ordinance or law coverage is divided into three parts:
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Coverage for Undamaged Portions of the Building
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Demolition Cost Coverage
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Increased Cost of Construction Coverage
1. Coverage for Undamaged Portions of the Building
If a building is partially damaged, local regulations may require the entire structure to be demolished and rebuilt to meet current codes. Standard property insurance only covers the damaged portion, but ordinance or law coverage helps pay for the reconstruction of the undamaged sections.
For example, if a fire destroys 50% of a building, but local laws require a full rebuild due to code changes, ordinance or law coverage will help pay for the cost of rebuilding the undamaged half.
2. Demolition Cost Coverage
Demolition costs can be extremely expensive, especially if strict local ordinances require complete teardown before rebuilding. Standard property insurance does not cover demolition of undamaged portions, making ordinance or law coverage essential.
This part of the coverage pays for labor, equipment, and waste disposal costs associated with legally required demolition.
3. Increased Cost of Construction Coverage
After demolition, rebuilding a structure to meet current safety, accessibility, and environmental standards can be costly. Increased cost of construction coverage pays for these extra expenses.
Common updates required by modern building codes include:
✔ Energy-efficient windows and insulation
✔ Fire suppression systems (sprinklers, alarms, etc.)
✔ Earthquake-resistant foundations
✔ ADA-compliant accessibility features
Without ordinance or law coverage, property owners must pay for these upgrades out of pocket.
Who Needs Ordinance or Law Coverage?
While ordinance or law coverage is beneficial for all property owners, it is especially important for certain groups:
✔ Owners of Older Buildings – Older properties are more likely to need significant upgrades to comply with modern codes.
✔ Business Owners – Commercial properties often have stricter legal requirements, making compliance expensive.
✔ Homeowners in Disaster-Prone Areas – Areas affected by hurricanes, earthquakes, or wildfires frequently update their building codes.
✔ Landlords and Rental Property Owners – Compliance with safety codes is crucial to avoid legal liabilities.
Even if a building was fully compliant at the time of construction, code changes over time may make it non-compliant today.
Real-Life Example of Ordinance or Law Coverage in Action
Imagine a homeowner, Sarah, owns a 40-year-old house that is partially destroyed by fire.
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Local building codes have changed significantly since the house was built.
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An inspector determines that the remaining structure does not meet current fire safety standards.
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Sarah is required to demolish and rebuild the entire house to meet updated codes.
Without ordinance or law coverage, Sarah’s insurance policy would only cover repairing the damaged section, leaving her responsible for:
✔ Demolishing the remaining structure
✔ Bringing the entire house up to current codes
✔ Additional construction costs for compliance
Since Sarah has ordinance or law coverage, her policy helps cover these extra expenses, ensuring she can rebuild without major financial hardship.
How Much Does Ordinance or Law Coverage Cost?
The cost of ordinance or law coverage varies depending on factors such as:
✔ The Age of the Property – Older buildings typically have higher coverage costs.
✔ Local Building Codes – Areas with frequent code updates may have higher premiums.
✔ Construction Costs – The expense of materials and labor affects the overall price.
On average, adding ordinance or law coverage to a property insurance policy may increase premiums by 5-15%. However, the financial protection it provides far outweighs the additional cost.
How to Determine If You Need Ordinance or Law Coverage
To decide if ordinance or law coverage is right for you, consider the following:
✔ How old is your property? – If your building is more than 10-15 years old, local codes have likely changed.
✔ What are local building regulations? – Research whether major code changes have occurred in your area.
✔ Can you afford out-of-pocket upgrades? – If rebuilding to code compliance would be financially challenging, coverage is a smart choice.
✔ What does your current policy cover? – Review your property insurance to see if ordinance or law coverage is included.
Many standard property policies exclude these costs, making additional ordinance or law coverage a wise investment.
How to Add Ordinance or Law Coverage to Your Policy
If you determine that ordinance or law coverage is necessary, follow these steps:
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Contact Your Insurance Provider – Ask if your current policy includes ordinance or law coverage.
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Assess Your Property’s Risk – Discuss your property’s age, condition, and local building regulations.
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Choose the Right Coverage Amount – Determine if you need basic coverage or higher limits.
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Compare Quotes – Different insurers offer varying coverage options and costs.
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Update Your Policy – Ensure ordinance or law coverage is officially included in your insurance plan.
Ordinance or law coverage is an essential addition to property insurance that helps cover the costs of complying with updated building codes after a disaster. Without this coverage, property owners may face substantial out-of-pocket expenses for demolition, rebuilding, and required upgrades.
This type of coverage is particularly important for older buildings, commercial properties, and homes in disaster-prone areas. By adding ordinance or law coverage to a property insurance policy, owners can ensure financial protection and peace of mind when rebuilding after unexpected damage.