How well do you know your homeowners insurance policy? Many homeowners assume they’re fully covered by their insurance in the event of a major property loss, but there is one add-on that is often overlooked: building code coverage.
After disaster strikes, homeowners who don’t have this type of coverage may be a bit shocked to find themselves underinsured and unable to front the cost of fully repairing their home. That’s because the standard insurance policy is based on how much it would cost to rebuild or repair your home. It does not cover the additional costs of bringing your home up to current building codes if the structure didn’t meet current regulations before the damage occurred.
In this case, what you don’t know can hurt you!
What Are Building Codes?
Building codes govern the design and construction of residential and commercial buildings, specifying the minimum requirements necessary to sufficiently safeguard the health and safety of building occupants.
Most states and local jurisdictions adopt the building codes created and maintained by the International Code Council (ICC), which include, but are not limited to, standards for:
- Americans with Disabilities Act (ADA) regulations
- Electrical, plumbing, mechanical and drainage systems
- Foundation and grading
- Heating, air and ventilation systems
- Roofing
- Structural support
The ICC issues new building codes periodically, although as a homeowner, you are not required to make upgrades each time a new code is enacted. However, if your home needs to be rebuilt in the event of a total loss, it must be rebuilt according to the building codes in place at the time of the loss. That means if your home is destroyed and you don’t have building code coverage, you are personally responsible for paying for code-compliant upgrades to your home, if any.
Situations like this point to an optional, yet invaluable, insurance endorsement: building code coverage.
What Is Building Code Coverage?
Building code coverage, also referred to as building ordinance coverage and building code insurance, is a type of optional insurance protection that can help cover the additional cost of bringing your home up to code after a covered loss.
The standard homeowners insurance policy is based on either the replacement cost or actual cash value of your home—before the damage. It’s generally an accurate measure of how much coverage you need, and it’s usually enough to repair your home to its original state in the event of a covered loss. However, it does not account for mandatory building code upgrades.
Building ordinance coverage comprises three coverages, which can be purchased together or individually:
- Coverage A — Loss of Undamaged Portion is applicable when only one part of a structure is damaged, but building code dictates that the entire structure be demolished. It covers the loss in value of the undamaged part of the structure.
- Coverage B — Demolition Costs pays to demolish and clear the undamaged part of the structure.
- Coverage C – Increased Cost of Construction covers the cost to rebuild or repair parts of the structure that are damaged, as well as the cost to rebuild or repair parts of the structure that are undamaged, whether or not demolition is necessary.
Do You Really Need Building Code Coverage?
Building code coverage is optional, so going without it, just like going without any optional insurance add-on, is a risk.
Let’s say a bad storm slams your community, and the giant oak tree in your front yard falls on your house, crashing through your roof and into your living room. A standard homeowners insurance policy likely includes coverage to help restore your home to its original state, leaving you with minimal out-of-pocket costs, if at all.
But say you live in an older home with a tile roof that, according to updated building code, is improperly installed. To repair it, you have to install a new wind-resistant tile fastening system, so your roof complies with current building codes. Not only that, but the tree also damaged your home’s wiring, which is also outdated according to code.
As you can see, the cost of necessary upgrades can quickly accumulate, and without building code insurance, those upgrades are going to have to come out of your wallet.
Although building code coverage is optional, it’s one of the most important coverages you can add on to your policy, especially if you live in an older home. As a policyholder, the amount of building code coverage you add to your policy is your decision. Just keep in mind that your policy will only pay up to your coverage limit.
Will Building Code Insurance Pay for Renovations?
Building code insurance kicks in only in the event of a covered loss, such as fire, water damage or falling objects. It won’t pay for upgrades associated with cosmetic renovations, remodels or routine maintenance, so if you decide to get a new roof and discover that you have to install a new wind-resistant tile fastening system to comply with building code, that cost is on you. However, if you need to get a new roof because a tree fell on your house and you have building code coverage, your policy can help pay for those repairs because they’re necessary.
Don’t wait until disaster strikes to learn about your policy’s limits. If you know your home doesn’t comply with current building codes, especially if it’s an older home, you may want to think about adding building ordinance coverage to your homeowners insurance policy.
Meet with a Homegrown Pro in your neighborhood or call 1-800-499-3612 to learn what your policy will and won’t cover, evaluate your property’s risk and add on the coverage that will help you be more prepared in the wake of a disaster.