The “Code Upgrade” Nightmare That Can Cost You Tens of Thousands After a Claim.
My House Was Only Half Destroyed, But I Had to Demolish the Whole Thing.
A fire destroyed the back half of my 1960s home. My insurance paid to rebuild the damaged portion. But when the city inspector came, he said that because more than 50% of the house was damaged, the entire structure, including the undamaged front half, had to be brought up to the current, much stricter building codes. My standard policy would not pay for this. I was on the hook for the cost of demolishing the good part of my house and for all the expensive, mandatory code upgrades. It was a financial nightmare.
Your Dwelling Coverage Rebuilds Your Old House. Ordinance or Law Rebuilds it to NEW Code.
The Critical Coverage for an Older Home.
This is the key distinction. Your standard Dwelling Coverage is designed to pay to rebuild your house exactly as it was a second before the loss. It will pay to replace your old wiring with new, but similar, old-style wiring. Ordinance or Law Coverage is a special endorsement that pays for the extra, mandatory costs to bring your home up to the current building codes after a loss. It is the coverage that pays for the expensive upgrades the government forces you to make.
My House Burned Down. The City Said I Had to Add Sprinklers. Who Pays?
The Mandatory Upgrade You Didn’t Budget For.
When my friend’s older home burned down, his standard Dwelling Coverage was enough to rebuild it. But when he submitted the plans to the city, they told him that any new construction in that area was now required to have a full, residential fire sprinkler system. The cost for this mandatory upgrade was over $20,000. His standard policy paid $0 for it. He had to pay for it out of his own pocket because he didn’t have an “Ordinance or Law” endorsement.
This Inexpensive Rider is One of the Most Important Add-ons for an Older Home.
The Older the Home, the Bigger the Gap.
The older your home is, the more crucial Ordinance or Law coverage becomes. A home built in the 1970s was built to a completely different, and much less stringent, set of building codes than a home built today. The gap between your home’s original construction and the current code is massive. This means that in the event of a major repair, the cost of the mandatory upgrades will be huge. This inexpensive rider is the only thing that will pay for that gap.
The “Demolition Cost” Component: What if You Have to Tear Down the Undamaged Portion?
The Added Insult of a Wrecking Ball Bill.
Ordinance or Law coverage typically has three parts. The most overlooked part covers the cost to demolish and haul away the undamaged portion of your home if the local building code requires it. In my fire example, not only did my standard policy not pay for the code upgrades to the undamaged front half, it also didn’t pay the $15,000 it cost for the wrecking crew to tear that “good” part of the house down. A good Ordinance or Law endorsement covers this added insult to injury.
Don’t Assume Your Policy Will Cover These Mandatory Upgrades. It Won’t.
The Most Common, Wrong Assumption in a Major Claim.
After a major loss, homeowners are often shocked and angry to learn that their insurance policy will not pay for the expensive code upgrades required by the city. They assume that their “replacement cost” policy should cover it. It does not. The standard policy is designed to replace your old house with a new version of your old house. It is not designed to pay for the extra costs of government regulations. Only the specific Ordinance or Law rider can do that.
A Tale of Two Rebuilds: One With This Coverage, One Without. The Difference Was $50,000.
The Same Fire, Two Radically Different Financial Outcomes.
Two identical, older homes in the same neighborhood had similar fires. The first owner had added a robust Ordinance or Law endorsement to his policy. His insurer paid to rebuild the damaged part, and also paid the extra $50,000 needed to upgrade the electrical and plumbing for the whole house to meet the new code. The second owner did not have the coverage. His insurer repaired the damage, but he was left to pay the $50,000 for the mandatory code upgrades out of his own pocket.
How a Small Fire Can Trigger a Massive, Code-Required Electrical Overhaul.
The Domino Effect of a Building Permit.
You have a small fire that only damages your kitchen. But to repair it, your contractor has to pull a building permit. The city inspector then comes out and informs you that because you are doing a major renovation, your home’s entire, outdated electrical system must be brought up to the current code. The fire only caused $20,000 of damage, but the mandatory electrical upgrade is going to cost another $15,000. Your standard policy will pay the $20k, but only an Ordinance or Law rider will pay for the $15k electrical overhaul.
The Older Your Home, The More You Need This Coverage. Period.
A Direct Correlation Between Age and Risk.
This is a simple, direct relationship. The older your home is, the greater the gap between its original construction and the modern building codes. A home built in 2010 might not need this coverage. A home built in 1950 absolutely does. Every decade that passes makes your home more and more “out of code,” and thus increases the potential cost of a mandatory upgrade after a loss. For any home more than 20-30 years old, this coverage is not a luxury; it’s a necessity.
The Insurance That Protects You From Your Own Town’s Building Inspector.
The Final Boss of a Homeowners Claim.
After you’ve dealt with the fire, the contractors, and the insurance adjuster, you have to face the final boss: the local building inspector. They are the one who has the power to force you to spend tens of thousands of extra dollars to comply with the latest codes. Ordinance or Law coverage is the specific and only tool in your insurance policy that is designed to protect you from the financial consequences of this final, and often most expensive, stage of your recovery.