What Is Building Ordinance Coverage?

Building ordinance coverage is insurance that covers the increased costs associated with repairing a damaged building. Such costs are due to changes in building codes since the building’s construction date. Older structures that are damaged may need upgraded heating, ventilating, electrical wiring, air-conditioning (HVAC), fencing, roofing materials, and plumbing units to be up to date with city codes. Building ordinance coverage helps policyholders afford potentially unforeseen expenses associated with fixing extensive property damage.

Key Takeaways

  • Building ordinance coverage is a form of insurance associated with the cost of repairing a damaged building, such as bringing an old building up to code.
  • This coverage assists policyholders in paying for any potential surprise expenses associated with upgrading or fixing property damage.
  • Building ordinance coverage is not usually part of a standard home or property-related insurance policy and must be purchased as additional coverage.
  • Building codes or ordinances are set by local governments and vary from one town to the other.

Understanding Building Ordinance Coverage

Building ordinance coverage is not typically included in a standard insurance policy and must be purchased as an endorsement of that policy. Some policies include only a limited amount of building ordinance coverage, and the property owner may wish to purchase more. In that case, the insured will pay a higher premium for the extra coverage.

Local governments establish building codes to protect occupants’ safety. Over time, construction standards that were once considered safe can become outdated as new knowledge and new materials make it possible to build safer establishments.

When a building is sufficiently damaged to the point that it requires significant reconstruction, cities require the new construction to meet the new building codes. Sometimes the expenses associated with complying with these codes are higher than what it would cost to reconstruct the building to its previous standard. A basic insurance policy might not provide enough coverage for these increased costs, but building ordinance coverage would fill in this gap.

Suppose your policy has a limited amount of building ordinance coverage, and you own a historic home or building. In that case, you may wish to purchase additional building ordinance coverage to protect your investment, even if you must pay a higher premium.

Example of Building Ordinance Coverage

Suppose John’s home has a fire that destroys 60% of the structure. His city’s building codes require that when more than 50% of a building is damaged, the entire structure must be torn down and rebuilt to current codes.

John’s basic homeowners' insurance policy only pays to rebuild the 60% of the damaged structure, but his building ordinance coverage pays to demolish the remaining 40% and rebuild 100% of the structure. His building ordinance coverage also provides enough money for John’s home to be rebuilt to current codes, not the 1970 codes that were in effect when his home was originally constructed.

Special Considerations

Local governments set building codes or ordinances to ensure the safety of building occupants. Building codes vary from one location to another, and some governments are more strict about them than others.

Building ordinance coverage is important because it will help the insured pay for the high demolition costs, loss of value, and increased construction cost affiliated with bringing a building up to code.