Building Codes - what does my policy insure:
After a severe property loss, the first shock comes in learning that rebuilding a damaged structure so that it conforms to the latest building codes can add substantially to your cost.
Then comes the unpleasant surprise of discovering that the "Ordinance or Law" exclusion in the property insurance policy will prevent a full recovery.
With building codes continually changing - requiring features like new or improved sprinkler systems, better wiring and handicap accessibility - this dilemma is not uncommon. Thatīs why, more than ever, it is important to understand the Ordinance or Law Exclusion - and the coverage that is available to cover these additional costs
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 you have enough limit to cover all three coverages 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. See sample Ordinance or Law Policy form.
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