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What Is Ordinance or Law Coverage in Homeowners Insurance?

By John Miceli

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Governments create building codes to improve the safety of residents and the integrity of buildings in an area. They’re especially important in places that experience a lot of severe weather, like Florida. Building codes change over time as more is learned about energy efficiency, the environment, and safety. 

As a result, the way your house was constructed may be out-of-date. This can conflict with homeowners insurance, as dwelling coverage at replacement cost is intended to rebuild your house exactly the way it was before you incurred a loss.

If you’re not allowed to rebuild your house how it was, how will your insurance pay for the updated construction, which will likely be more expensive? This is where ordinance or law coverage comes into play.

What Is Ordinance or Law Coverage?

Ordinance or law coverage is either included in your homeowners policy or you can purchase it as an endorsement, depending on where you live, and it covers the cost to rebuild or repair a home that’s been damaged by a covered peril up to the latest local building codes.

After your home has been destroyed or damaged, sometimes you can’t rebuild it exactly how it was before because building standards may have changed since your house was built. If this is the case, it can cost more to rebuild than you initially thought, and ordinance or law coverage can come into play to help out with the costs.

Ordinance or law coverage will cover the costs incurred to comply with the latest building codes, which can get into the tens of thousands of dollars if you’re rebuilding an older home. This can include debris removal, demolition, and the increased cost of new construction.

Some places have rules that an out-of-date house must be completely rebuilt even if it gets only partially destroyed. For instance, your city could mandate that if more than 50% of your home gets damaged, you have to bring 100% of it up to code anyways, which means demolishing undamaged parts of your house.

Ordinance or law coverage will pay for renovating these undamaged parts of your home to bring them up to code, too. Standard dwelling coverage would not pay for the untouched parts of your home since there would need to be a qualifying loss to induce coverage.

Do I Need Ordinance or Law Coverage?

Insurers are required to offer ordinance or law coverage in Florida, but it’s optional elsewhere. If your home isn’t brand new, ordinance or law coverage could be a wise investment. Building codes change more often than you think, and even a home that’s only 5 or 10 years old could be violating compliance in some way. 

Ordinance or law coverage can come into play when you need to update your plumbing system, redo your home’s wiring, raise your foundation, or install new weather-resistant or fire-safety measures in your home. 

While many of these features are covered under typical HO3 plans, your insurance won’t pay for improved or upgraded ones if these features are outdated. Homeowners insurance is meant to cover your house as it is, and if it stands out-of-date, ordinance or law coverage will help cover some of the difference in costs to update accordingly.

How Much Ordinance and Law Coverage Should I Have?

Ordinance or law coverage varies by state. How much you need depends on your location and how your home is built. Ordinance or law coverage is commonly 10% of the dwelling coverage limit. But in Florida, it’s likely to be 25% to 50% due to the threat of serious storms and regularly fluctuating building codes. You may also be able to add more coverage depending on your insurer.

For example, if you have $300,000 of dwelling coverage, and you’ve got ordinance or law coverage that’s 25% of your dwelling limit, you’d have $75,000 in ordinance or law coverage. This $75,000 could absorb some costs of state-mandated updated construction needed to rebuild your house. Costs that qualify wouldn’t count against your dwelling coverage limit.

Generally, the older your home is, the greater the chance it has of not aligning with current building codes. So it might be wise to spring for more ordinance or law coverage if your home is older, as more parts of it would need to be brought up to date when being repaired.

Keep in mind your local construction codes. If you live in a place that requires a total rebuild up-to-code if you experience damage worth 50% of your home’s value, you’d probably need ordinance or law coverage more than someone who lives in an area that doesn’t require these complete rebuilds. Always consider the potential demolition costs of undamaged parts of your house.

In Florida, it’s recommended you have around 50% of your dwelling coverage limit as ordinance or law coverage, if not more. It’s scary to think about, but to have sufficient coverage, you need to be prepared for the worst-case scenario. This would entail a complete rebuild and renovation of your home after a disaster, which would likely call for more than 10% of your dwelling coverage limit.

Ordinance or Law Coverage Deductible

Ordinance or law coverage doesn’t have its own specific deductible. Instead, since it’s part of your policy or an add-on, it’s activated when your insurer is covering your damage. The deductible you pay when filing a home insurance claim suffices for your ordinance or law coverage, too.

Your deductible could be a fixed dollar amount, such as $1,500 or $3,000, or it could be a percentage of your dwelling coverage if you’re filing a wind claim. Having ordinance or law coverage shouldn’t increase your deductible per se, but it could increase the cost of your policy, which may affect the deductible amount you choose.

Ordinance or Law Coverage Examples

Let’s give a very basic example to illustrate how ordinance or law coverage could come into play. Let’s continue with our hypothetical $300,000 dwelling coverage and $75,000 ordinance or law coverage policy. Say a home with this plan suffers serious damage after an electrical fire and needs to be completely reconstructed. 

There are no increased labor costs and everything in the house can be rebuilt exactly the same, except the state requires new homes to have hurricane-proof windows. Let’s say it will cost $300,000 to build the home, but the new windows cost $10,000, bringing total costs to $310,000. Without ordinance or law coverage, the homeowner would need to cover the $5,000 for these upgraded windows out-of-pocket since it exceeds the dwelling coverage limit.

But, with ordinance or law coverage, the $10,000 expense for the windows would be covered since it’s state-mandated construction. This would leave you with $65,000 of remaining ordinance or law coverage and no out-of-pocket expenses. 

Again, this is a very basic example. But, you can see how some home upgrades could get very costly, especially if your entire house needs to be updated. If your homeowners insurance policy does come with some ordinance or law coverage, the minimum may not be enough. Increasing your ordinance or law coverage may marginally raise your rate, but it could pay off down the line.

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The editorial content on Clovered’s website is meant to be informational material and should not be considered legal advice.