Law and Ordinance Coverage: Do You Really Need It?

Law and ordinance coverage pays to repair or replace older homes that need to be rebuilt with modern building standards. Local building codes are constantly changing to create safer homes, but that also means that the cost to rebuild older homes only increases over time.1

Complying with lots of new building codes isn’t something a standard insurance policy covers.2 This can add a significant cost to the repair process, and you’ll have to pay out of pocket unless you have law and ordinance coverage.

Fortunately, this coverage is typically very affordable, and you can usually buy it as an add-on to your homeowners insurance policy.

How law and ordinance coverage works

When you file a claim with your homeowners insurance, your insurer will pay to repair, replace, or even rebuild your home as it stands now — which could be a problem if legislators have introduced lots of strict building codes in the years since your home was first built.

State and local governments decide which codes to adopt into law and when. Often, they follow the recommendations from the International Code Council, which releases current building codes every three years.3 It doesn’t take long before your home is out-of-date, and when you go to repair or rebuild it, you might have a lot more work on your hands than you’d planned.

Law and ordinance coverage is typically offered as an add-on endorsement to your existing homeowners policy. It’s generally available in increments of 25% based on your coverage limits. If your home has $500,000 in coverage, for example, then the lowest amount of coverage (25%) would pay for up to $125,000 in additional costs.

Who should buy law and ordinance coverage?

If you have an older home, it’s a good idea to consider this coverage. The Independent Insurance Agents & Brokers of America recommends that homeowners consider this coverage if they own a home more than 10 years old, but there aren’t any hard-and-fast rules about who should buy it and who should pass.4

Key components of law and ordinance coverage

Just like with your property insurance policy, law and ordinance coverage pays for more than one thing. It actually comes with three types of coverages:

• Coverage A: Loss to undamaged portion of the building: Local laws dictate when you need to tear down the rest of a damaged building and rebuild from scratch. That threshold often triggers when inspectors declare a 50%–75% loss to your home. This provision pays for the undamaged property you’ll be demolishing.

• Coverage B: Demolition cost coverage: Hiring professionals to demolish and remove the remains of the damaged portion of your home — along with the undamaged portion — isn’t cheap. This provision covers those expenses.

• Coverage C: Increased cost of construction: This pays for the added construction cost when rebuilding your home up to current codes for your area. You might need to use a different type of electrical wiring, for instance, or install a roof that’s resistant to fires.

Factors influencing coverage requirements

Law and ordinance coverage isn’t generally a required part of your property insurance policy. Anyone can buy it if they choose. In fact, standard homeowners policies generally come with a limited amount of building ordinance coverage — often around 10% of the coverage limits for your entire structure.

Some states have taken to regulating these property policies in other ways. Florida, for example, requires insurers to automatically include building ordinance coverage with at least 25% coverage limits for all standard homeowners insurance policies unless homeowners opt out.

How much does law and ordinance coverage cost?

Insurance companies use several factors to determine the added cost of a law and ordinance endorsement on a standard insurance policy:

Law and ordinance coverage is generally very affordable. Most policies cost around 3% of your base premium amount in order to boost your law and ordinance coverage to 25%. If you were to bump your coverage amount up to 100%, it’d generally only cost around 15% more.

Law and ordinance coverage FAQs