Homeowners InsuranceInsurance policies are written to indemnify the insured against damage or loss. They are not so that it ends up in a better position than they were prior to a loss. This is done to prevent incentives to having or creating losses that would end up costing the insurance company, and by extension other policyholders. For instance, if your home is damaged by a hurricane, your insurance carrier has the responsibility to return the building to its prior lived in condition. This is true even if the building is older, and out of compliance and building codes – and that’s where things get tricky.

Depending on your municipal laws and building codes, if a certain percentage of the building is damaged, you could be required to bring the entire structure up to the current code or to have it demolished. Considering how often building codes are updated, the expenses to upgrade a home built as recently as 15 years ago can be a substantial financial burden upon the insured. This type of insurance is not just for owners of vintage homes. If you have a home as old as 10 years, you will want to discuss a type of insurance called “law and ordinance coverage” with your insurance agent. This type of insurance is designed specifically to help building owners defray increased repair costs that are the result of updated building codes or ordinances passed after the building was completed.

The coverage consists of three distinct components:

  1. Loss of value covers the costs of rebuilding the undamaged portion of the structure in order to bring it up to code and into compliance with current ordinances.
  2. Increased cost of construction covers the costs of construction associated with replacing the building with a code conforming structure. This is done after a certain portion of the building is determined to be irretrievably damaged and incapable of being rebuilt to current code and brought into compliance with current ordinances.
  3. Demolition coverage covers the demolition and removal of the entire building so that it can be replaced with a code conforming structure. Removal of the damaged structure can be a large expense, when one takes into account the fees for appropriate containment of lead or asbestos mitigation, appropriate storage of the debris, dump permits, and regrading of the lot prior to construction.

These three components help to fill the gap left by regular homeowner’s policies, no matter what the source of the damage might be. You will want to consult with a professional insurance agent to see if this kind of insurance could be augmented with insurance for loss of use and other costs associated with declaring a building or dwelling a total loss. Other expenses can include loss of business, loss of use, and costs associated with obtaining other housing or a new premises for your business. This type of insurance is equally as important for condominium dwellers as it is or those who own single-family homes, income property, and rental units. Talk to an insurance professional today about updating your coverage for your older building.