If you own commercial property, you know how important it is to have property insurance. You might assume that your insurance would cover you completely if your building suffers damage or destruction, but that’s not necessarily true.

There are several scenarios in which your commercial property insurance may not help you cover costs. These include bringing your building up to code after an accident or complying with local laws about rebuilding damaged properties. For that, you need to add ordinance or law insurance to your property insurance.

Ordinance or law insurance, also known as building ordinance or law coverage, helps pay for construction and repair costs if your building is damaged and needs to be brought up to code during repairs. Adding ordinance or law insurance to your property insurance coverage is a good idea for any property owner. But it is particularly vital for owners of older buildings that may need more significant work.

What is ordinance or law insurance?

Ordinance or law insurance is typically added as an endorsement to your commercial property insurance, although your insurance plan may already include it. Make sure to check your policy to see whether or not it contains the necessary provisions. Even if the policy includes some ordinance and law coverage, you might want to increase the amount of coverage to meet your needs.

There are several scenarios in which you’ll be happy you have ordinance or law coverage, including:

  • A fire destroys the top three floors of your building, but the bottom three are intact. Your local building codes and ordinances require you to tear down the entire building due to the extent of the damage.
  • A major plumbing leak exposes that your building’s old pipes are no longer up to code and have to be replaced, thus costing you more than a simple repair bill.
  • An interior ceiling collapse reveals asbestos insulation that requires significant abatement work.

With an ordinance or law insurance policy, you can get compensation from your plan to help make code-compliant repairs. Or you can get covered for the costs involved in tearing down the undamaged sections.

How is ordinance or law insurance different than property insurance?

Commercial property insurance offers broad protection against accidental physical loss or damage to covered property, including the building, its contents, and the building’s exterior, as well as business interruption because of physical loss.

Ordinance or law insurance serves as a complement to property insurance by providing financial assistance in scenarios that are consequential to property loss.

Since ordinance or law insurance is additional coverage, it’s not a replacement for basic property insurance. For example, an ordinance or law insurance policy wouldn’t pay for repairs to your code-compliant building as a result of a fire.

Breaking down ordinance or law insurance

Ordinance or law insurance includes three kinds of coverage:

  • Coverage for loss to the undamaged portion of the building
  • Demolition cost coverage
  • Increased cost of construction coverage

How are they different? Let’s say 80 percent of your building is damaged and the entire structure has to come down. Your property insurance will only cover 80 percent of the cost to tear down the building:

  • Coverage for loss to the undamaged portion of the building – Covers the value of the remaining 20 percent that is undamaged. This option tends to be the most expensive of the three since it’s also the most comprehensive.
  • Demolition cost coverage – Pays the demolition bill for the amount of the building not covered by your property insurance policy. Using the same example, this means you won’t have to pay a demolition crew to take down the undamaged 20 percent of the building.
  • Increased cost of construction – Helps pay for any increased costs necessary to bring your building up to code or rebuild in a way that complies with applicable ordinances. If you need to undertake extensive renovations due to code enforcement and laws, this portion of your coverage has your back.

Bear in mind that you can set the maximum amount of coverage you want for these coverages. A lower coverage amount translates into a lower monthly premium but limits how much you’ll receive if you need to make a claim.

Making sense of your coverage options

Owning property can be expensive, but so can repairing or rebuilding in the event of an accident or disaster. If you include ordinance and law insurance into your commercial property insurance coverage, you can take the bite out of expenses you’d otherwise be on the hook to pay.

If you own a building—especially an older one—you might want ordinance or law insurance so you can:

  • Supplement your property damage coverage if your building is partially damaged.
  • Cover the costs that come with bringing an existing building up to code after an accident.
  • Pay for demolition costs of an undamaged part of a building that has to be taken down to bring the rest of the building up to code.

With the right policy and endorsements, you can breathe a sigh of relief knowing you’re protected even if your building suffers catastrophic damage.

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