Assume that having replacement value property insurance means that even if something happens, they’re in good shape. After all, replacement value should pay for a brand new version of whatever you lost, right? But when it comes to buildings, including homes, both new and old, this isn’t always the case. If you’re a property owner, it’s important to know about ordinance or law coverage and how it applies to you. Failure to understand when and where ordinance and law coverage is necessary may mean that if your home or commercial building is damaged, you don’t have the coverage you need.

If you’re the owner of an older home or building that you know isn’t up to code; or if you own a building that is relatively new but an essential investment, there are several scenarios where not having law and ordinance coverage can leave you in the lurch.

Ordinance or Law Coverage – Scenario one: Demolishing and/or replacing the undamaged portion of a building:

Even if a portion of your building isn’t damaged, city ordinance may dictate that the remainder of the building be demolished, especially if it’s older. But without ordinance or law coverage, you won’t be compensated for replacing the portion of the property that wasn’t directly damaged. In addition, law and ordinance coverage can help pay for the cost of the demolition itself, including the removal of debris.

Scenario two: Replacing a building versus bringing it up to code:

If the structure that has been damaged is not up to code in any area, a standard replacement policy probably will not cover the discrepancy in cost between something new and something up-to-date. Say your new building will need some remodeling to meet ADA requirements, or your old electrical or heating systems did not meet modern standards: with law and ordinance coverage, you’ll be able to take into account any changes that need to be made to bring the replacement building up to code.

Scenario three: Increased delays in repair or reconstruction due to code compliance issues:

If it takes longer to rebuild or repair a damaged building, standard property insurance won’t provide compensation for income or expenses lost during that extended time frame. Especially if you know your building is not up to code, you may want to consider preparing for what would likely be an extended delay in business operations should your building need to be replaced.

So, do I really require law or ordinance coverage?

Even if these scenarios make sense, it’s still important to work closely with your insurance agent to determine the right type and amount of coverage you require. Each coverage is specific and separate, and the best endorsements for you will vary depending on where you live and your unique situation. Whatever you do, don’t let this critical gap in coverage go unaddressed before it’s too late.

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