As a homeowner, there are several unforeseen problems that you might face as a result of several uncontrollable factors. For example, events such as natural disasters or fires can result in huge financial losses, especially if you do not have a creditable insurance policy. Even if you have a homeowners policy, there may be coverage gaps, and it may not cover all the costs you may spend for repairs or rebuilds in the event of a covered disaster. Construction costs can change and may exceed your policy limits.
As such, to ensure you are properly covered, there are two additional policy options you should know about: extended dwelling coverage and building ordinance or law coverage. We’ll explain the policies below.
1. Extended Dwelling Coverage
If you have insured your property to 100% replacement cost and your home is fully insured, you can expect to get full coverage for damages caused by a disaster or any other insured event. For example, if your home is insured to value at $100,000, and a disaster occurs which destroys your home and you need a total rebuild, your homeowners’ policy will provide $100,000 as long as you are fully insured.
However, this may not be enough in certain cases. For example, if a citywide disaster occurs and it results in increased construction costs, the estimate for a rebuild may go past $100,000 and increase to $125,000, leaving a gap of $25,000 in your coverage. If you have extended dwelling coverage, it’ll cover the extra percentage of the cost. An extended dwelling policy is one that offers additional coverage to reimburse for a total loss that exceeds the coverage on the dwelling that is listed on a policyholder’s plan.
Before you purchase an extended dwelling coverage plan, the insurer will make sure that the proper value is placed on your home with the standard homeowners’ policy. This policy can protect you from rises in construction prices and the effect of inflation on building costs. Some companies may limit the above limit coverage to 25% or 50%. Regardless, this policy helps you avoid being underinsured in the case of a disaster or total loss.
2. Building Ordinance or Law Coverage
Building ordinance or law coverage is a type of insurance that protects property owners from extra costs associated with rebuilding a property in compliance with new building codes. If your home gets damaged and you need to rebuild or repair it, you must rebuild or repair in compliance with new building codes. For homeowners with homes that were constructed many years ago, this can result in additional costs that would be spent on upgrades or replacements they would need to ensure they follow the current laws and regulations.
For example, if 25% percent of your roof gets damaged, a standard homeowners policy may only pay the amount needed to cover 25% damage to your roof. However, a new building code may require you to replace the whole roof, leading to extra costs. A building ordinance or law coverage policy helps to pay for these extra costs.
The two policies above help to protect homeowners from potential coverage gaps. For more information, contact us at Duane Weber Insurance. We are here to assist you with all your home insurance needs today!