Will Your Homeowners Insurance Policy Cover the Cost to Rebuild??

Posted by on Oct 26, 2012

Having dealt with a number of insurance settlements over the years, one thing we have found is that in the event of a total loss MOST insurance policies do not cover the cost to rebuild!!  One reason is that many insurance companies have a standard “Ordinance or Law (code upgrade) limit” of 10 % of the building policy limit. The issue lies in Building Code Ordinance laws and the difference between what the building code was at the time the home was built and when the home needs to be rebuilt because of a devastating fire or other damage. Unfortunately, most basic home insurance policies only provide limited Ordinance or Law coverage and sometimes none at all.

For instance, let’s say your home was valued at $350,000 with a 10% provision for code upgrade. In the event that you experience a total property loss, you MAY be entitled to $385,000 in compensation. The problem is in order to comply with the current building standards, a majority of the cases in which we have been involved required closer to 50% for code upgrade. Using the example case study cited above and a conservative estimate of 25% needed for code upgrade, the cost to rebuild under the current building code provisions would be $437,500, a difference of –$52,500! If in fact the requirement for code upgrade reaches 50% that would result in a difference of –$-140,000!!!! What this means is you, as the policyholder, would be responsible for the difference in the event that you decide to rebuild.

What can you do to ensure you are covered in the event of property loss? Call your insurance agent and ask how much your current code upgrade limit covers!! Based on various estimates we have obtained from a number of insurance companies, your premium may only increase by 4% per year for code upgrade coverage from 10% to 25% and 9% per year to increase this coverage to 50%!!!! You won’t regret the minimal increase in the event you have to file a claim!!