DEFINITION of Demolition Insurance

Demolition insurance that is used to cover the costs of demolishing a building that is damaged by a peril, such as a fire or storm. Zoning requirements or building codes may require that a damaged building be demolished rather than repaired. Demolition insurance covers the cost of tearing down undamaged portions of a damaged structure.

BREAKING DOWN Demolition Insurance

Demolition insurance covers a building that is damaged, not necessarily pieces of a building that may cover the property itself after a storm or other peril. Property owners should also check their property insurance policies for a debris removal provision, which covers the cost of removing debris and pollution that may result from demolition.

What Homeowners Insurance Covers

The typical homeowners policy may or may not cover demolition and debris removal, depending on the state and policy type. HO-1, one of the most common policies, covers damage from: fire, lightning, windstorm (unless you live in a hurricane zone), hail (not available everywhere); explosion, riots, civil commotion, aircraft  (and things falling from aircraft), vehicles striking the house (and things thrown from vehicles); smoke, vandalism (although some policies exclude this); malicious mischief, theft and volcanic eruption. HO-2 adds coverage for falling objects; the weight of ice, snow, or sleet, flooding from your appliances, plumbing, HVAC, or fire-protection sprinkler system; damage to electrical parts caused by artificially generated electrical currents (such as a power surge not caused by lightning), glass breakage, and abrupt collapse.

Some policies cover demolition but only up to a stated percentage of the cost of rebuilding. So if you have $100,000 worth of damage covered under the policy, and 25% coverage for demolition, you'd get $25,000 less whatever you're deducible is. Debris damage works the same way, but this gets complicated if, say, a wind storm knocks down a bunch of trees and tears up your yard. The same 25% would apply, but only of the total cost of the claim, which could well be mostly the debris removal. In this case, you'll be short of what you need to put your property back in pre-storm shape.

In addition some policies have a section called "additional coverage" that may add a lump sum of say $10,000 to any debris removal or demolition coverage. 

Most people who buy homeowner's insurance file the policy away without reading it. It's only when there's a claim that you start looking at what's really covered and for how much. This can lead to expensive surprises.