The shock of a severe property claim is disruptive
enough without finding out your insurance is inadequate.
You might get surprised by
discovering that the "Ordinance or Law" exclusion
in the property insurance policy will prevent a full
recovery.
Insurance policies normally only pay to replace
with "like kind and quality". The trouble starts when
the building codes require changes. You
may be required to rebuild with new or
improved sprinkler systems, better wiring, fire
doors and handicap accessibility.
Even
newer structures may not meet code.
First
determine what ordinance limits you require. You
might need the services of an architect familiar with
local, state, and federal codes. There are also some
appraisal firms that specialize in this area. Keep in
mind that the shelf life of such an evaluation is only
good until the next ordinance or law is passed affecting
the repair or reconstruction costs for your building.
This is an area that requires constant monitoring to
keep up with the changing codes.
Your next step is to
find out what coverage you have already.
Typically insurance companies bundle three optional
coverages in the Ordinance or Law endorsement. The
bundle includes "undamaged", "demolition" and "increased
cost of construction". (
see
definitions) Your current policy may totally
exclude Ordinance or Law, cover you for a sub-limit or
fully cover you up to your building limit.
Finally decide what,
if anything, you need to purchase. Your goal
should be to verify that you have enough coverage
for all three sections in the bundle.
(undamaged, demolition and increased cost of
construction) For this reason
we usually suggest you
purchase demolition and increased cost of construction
as a combined limit. This way, if you have a
claim, you avoid depleting one of the bundled coverages
while possibly over-insuring the others.