When you have damage to your house from a cause covered by your homeowners insurance, such as fire, most insurance policies pay the replacement cost for the damaged portion of the home, with the same kind & quality of materials before the fire occurred.
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However, contractors repairing your damaged home have to comply with the present day building code, sometimes requiring extra expense, beyond the replacement cost, which is not covered by the basic home insurance policy.
Having damage to your home is disturbing enough, but having to pay tens of thousands of dollars out of your own pocket, to have your home repaired, when you thought you had the right homeowners insurance coverage, makes people feel they have been ripped off. Don’t be one of them. Make sure you know what costs your homeowners insurance does not cover, and make sure you buy the additional protection you need from an insurance company which offers it. Besides, when you shop for the right home insurance coverage with all the major insurance companies, you often find out you were paying too much for the wrong coverage.
The example many agents use to explain the importance of this coverage is a small fire damaging a portion of an older home.
An electrical contractor assessing the damage tells you the whole house needs to be re-wired, as part of the repairs, to meet the current building code, and must be done as required by law.
The wiring damaged by the fire is covered by the basic policy, but the additional expense of re-wiring the undamaged portion of the home is not covered, unless you add Ordinance & Law coverage.
The problem with the above example is people think Ordinance & Law coverage is needed only if you have an old home, which has not been renovated to today’s building code.
However, here is an example which affects all homes, regardless of age:
You have a house fire, and half your house burns down. Because of the substantial damage, the structure cannot be made sound by repairing it, so you are required to demolish the undamaged half of the home, and rebuild the entire house.
The cost of demolition to the undamaged part of the home, and half the cost to rebuild the home is not covered unless you have Ordinance & Law coverage. Even if you want to walk away from the home, as the owner, you have the legal requirement to demolish the building, and you can be held responsible for it.
Ordinance & Law coverage is an important coverage, sometimes not discussed by agents, and declined by customers whom need it.
Even if you have Ordinance & Law coverage, you probably don’t have enough coverage. Many insurance companies offer only 10% of the amount of coverage on the house for Ordinance & Law coverage.
Let’s see how the coverage and costs add up for the situation I described:
Your home is insured for $200,000, which is the cost to rebuild your home. Half your home burns down, and it costs $100,000 to rebuild the damaged half. Your homeowners insurance pays $100,000 to rebuild the damaged part.
But because of the law, you have the cost of demolition of the undamaged portion of the house, and the cost to rebuild the entire house, so it will cost you $200,000 to rebuild your home, plus the cost of demolition.
If you have Ordinance & Law coverage capped at 10% of the amount of insurance coverage on your home, you get an extra $20,000 from the insurance company, but you are still out of pocket $80,000, plus the cost of demolition.
I recommend getting Ordinance & Law coverage which is 50% to 100% of additional coverage for the amount of insurance coverage on your house, if you can find an insurance company offering that much coverage.
Do you have Ordinance & Law coverage on your homeowners insurance policy? Why not? Tell me about it. Please leave a comment on my facebook page. Or, you can e-mail me at email@example.com if you have questions and would like my help. Follow me on Twitter for important insurance consumer news and new blog entries at CarInsWatch.