The Property Risks You Might Have Overlooked

You buy homeowners insurance to protect your home from damage or loss due to fire, theft, vandalism and more. But without certain important coverages, your policy could leave you short of the funds needed to rebuild and recover.

The Problem of Increased Construction Costs

Smart consumers usually will pay a bit extra to buy replacement cost homeowners coverage, rather than actual cash value coverage, on their home. They know that the replacement cost policy will replace lost or damaged home and personal property with materials of similar kind and quality, rather than just reimbursing them for current value…which might be much less.

However, even homeowners with replacement cost coverage could find themselves short of funds if a serious loss forced a major remodel or rebuild.

Building codes are constantly evolving to make buildings safer and better able to withstand natural disasters, such as storm, earthquake and fire. Any building more than a few years old might not comply with current building codes. When property damage forces you to rebuild or remodel your home, you most likely will have to bring your construction up to current codes. Depending on your locale, this could mean thousands of extra dollars for additional structural supports, earthquake protections, fire protection, electrical system upgrades and more.

To make matters worse, after a portion of your home is damaged, local authorities will likely require you to repair undamaged portions of your building to bring them up to current codes. And since remodeling usually costs more on a square-foot basis than new construction, these repairs can be costly. Unfortunately, standard property policies exclude coverage for loss or damage resulting from “operation of ordinance or law” that increases construction costs.

A policy endorsement, or addition, called “ordinance or law coverage” or “increased cost of construction coverage” can help you cover some of the unexpected costs of disaster recovery. This endorsement provides three types of coverage when laws or ordinances require you to spend more on reconstruction:

  • the cost of making required repairs to the undamaged portion of a building.
  • the costs of demolition and debris removal.
  • increased costs of construction, or actual costs of bringing the damaged portions of your home up to current codes.

To obtain ordinance or law coverage, your property policy must be written on a replacement cost basis, rather than actual cash value basis. If you decide to relocate rather than rebuild after a total loss, your replacement cost homeowners policy would pay the replacement cost of your home, but the increased cost of construction coverage would not apply, since no reconstruction actually occurred.

Debris Removal

If a covered peril damages your home, or any part of it, you’ll probably have some trash and debris to remove before repairs can begin. Will your insurance policy cover these costs?

In some cases, debris removal costs could greatly exceed the cost of the direct property damage. Debris removal can cost more than you might think. If your building is older, it could contain lead paint, asbestos and other contaminants that require special handling and disposal. Only specially licensed contractors can handle these materials, which can be costly.

You could even have debris removal costs even without any covered property damage. For example, a flood or windstorm could deposit debris from another property onto yours. In that case, the debris does not come from “covered property” under the policy, which would not cover removal costs. Exceptions might exist when the debris itself is causing damage to covered property.

The typical homeowners policy provides debris removal coverage as an “additional coverage” over and above your policy’s limits. It will pay the cost of removing debris of “covered property” resulting from a “covered cause of loss.” It usually limits coverage to 25 percent of the amount of the covered direct property loss, less 25 percent of the policy deductible. So, if windstorm (a covered cause of loss) causes $50,000 worth of damage to your house, your policy would pay an additional $12,500 minus 25 percent, or a maximum of $9,375.

You can add additional debris removal coverage through a policy addendum, or endorsement. To ensure your home and possessions have adequate protection, please contact us for a policy review.