Law and Ordinance Coverage: Do You Really Need It?

Law and ordinance coverage pays to repair or replace older homes that need to be rebuilt with modern building standards. Local building codes are constantly changing to create safer homes, but that also means that the cost to rebuild older homes only increases over time.^[1]

Complying with lots of new building codes isn’t something a standard insurance policy covers.^[2] This can add a significant cost to the repair process, and you’ll have to pay out of pocket unless you have law and ordinance coverage.

Fortunately, this coverage is typically very affordable, and you can usually buy it as an add-on to your homeowners insurance policy.

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How law and ordinance coverage works

When you file a claim with your homeowners insurance, your insurer will pay to repair, replace, or even rebuild your home as it stands now — which could be a problem if legislators have introduced lots of strict building codes in the years since your home was first built.

State and local governments decide which codes to adopt into law and when. Often, they follow the recommendations from the International Code Council, which releases current building codes every three years.^[3] It doesn’t take long before your home is out-of-date, and when you go to repair or rebuild it, you might have a lot more work on your hands than you’d planned.

Law and ordinance coverage is typically offered as an add-on endorsement to your existing homeowners policy. It’s generally available in increments of 25% based on your coverage limits. If your home has $500,000 in coverage, for example, then the lowest amount of coverage (25%) would pay for up to $125,000 in additional costs.

Who should buy law and ordinance coverage?

If you have an older home, it’s a good idea to consider this coverage. The Independent Insurance Agents & Brokers of America recommends that homeowners consider this coverage if they own a home more than 10 years old, but there aren’t any hard-and-fast rules about who should buy it and who should pass.^[4]

Key components of law and ordinance coverage

Just like with your property insurance policy, law and ordinance coverage pays for more than one thing. It actually comes with three types of coverages:

Coverage A: Loss to undamaged portion of the building: Local laws dictate when you need to tear down the rest of a damaged building and rebuild from scratch. That threshold often triggers when inspectors declare a 50%–75% loss to your home. This provision pays for the undamaged property you’ll be demolishing.
Coverage B: Demolition cost coverage: Hiring professionals to demolish and remove the remains of the damaged portion of your home — along with the undamaged portion — isn’t cheap. This provision covers those expenses.
Coverage C: Increased cost of construction: This pays for the added construction cost when rebuilding your home up to current codes for your area. You might need to use a different type of electrical wiring, for instance, or install a roof that’s resistant to fires.

Factors influencing coverage requirements

Law and ordinance coverage isn’t generally a required part of your property insurance policy. Anyone can buy it if they choose. In fact, standard homeowners policies generally come with a limited amount of building ordinance coverage — often around 10% of the coverage limits for your entire structure.

Some states have taken to regulating these property policies in other ways. Florida, for example, requires insurers to automatically include building ordinance coverage with at least 25% coverage limits for all standard homeowners insurance policies unless homeowners opt out.

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How much does law and ordinance coverage cost?

Insurance companies use several factors to determine the added cost of a law and ordinance endorsement on a standard insurance policy:

Building age
The older a building is, the more out-of-date it’s likely to be, leading to increased costs.
Coverage amount
Most policies already come with 10% coverage limits to comply with new codes, but you can buy coverage in higher increments of 25% or more. The cost increases as you bump up your level of protection.
Where you live
The cost of construction and demolition varies a lot around the country, along with the new codes enacted in different cities and the risk of having a covered loss due to natural disasters. All these factors affect property insurance coverage costs.

Law and ordinance coverage is generally very affordable. Most policies cost around 3% of your base premium amount in order to boost your law and ordinance coverage to 25%. If you were to bump your coverage amount up to 100%, it’d generally only cost around 15% more.

Law and ordinance coverage FAQs

Future-proofing your policy against changes in local ordinances and required upgrades is one of the best ways that property owners can protect their finances if they suffer a covered loss. Here’s some quick general information to guide you.

What is law and ordinance coverage, and why is it important?

Law and ordinance coverage pays for the added cost of rebuilding your home in accordance with up-to-date building codes. Standard home insurance policies don’t typically cover this; they only cover your home as it presently stands, without the required upgrades.

What types of structures or buildings does law and ordinance coverage typically cover?

Law and ordinance coverage applies to all the same buildings and structures as regular homeowners insurance. That includes your home’s entire building, as well as outbuildings, such as unattached garages, barns, sheds, and accessory dwelling units (ADUs).

How does law and ordinance coverage differ from standard property insurance?

Law and ordinance coverage is an endorsement, or add-on coverage option, available with a standard homeowners insurance policy. Your regular homeowners policy pays to repair or rebuild your home as it stood before receiving significant damage, while the law and ordinance endorsement will pay the extra costs needed to bring it up to code under the current laws.

Does law and ordinance coverage have any common limitations or exclusions?

Yes. Depending on your policy’s terms, it won’t cover commercial buildings on your property or rental units. Your policy also has rebuilding or repair cost coverage limits expressed as a percentage of your main dwelling coverage, such as 25% or 50%. Upgrade costs beyond this point don’t have coverage.

How can you determine the appropriate amount of law and ordinance coverage for your property?

The only way to know whether you have enough law and ordinance coverage is to check with your insurance agent since there aren’t any handy rules of thumb to determine the correct coverage amount. In general, the older your home is, the higher your coverage limits should be for building ordinance and law coverage.

Sources

Insurance Information Institute. "I.I.I. Glossary."
Adjusters International. "Ordinance or Law Coverage."
FEMA. "Federal Role in State and Local Building Codes and Standards."
Independent Insurance Agents & Brokers of America. "Ordinance or Law for Your Homeowners’ Clients."

Methodology

Insurify data scientists analyzed rates from more than 180 home insurance companies sourced directly from Insurify’s partner companies and Quadrant Information Services. Rates span all 50 states and Washington, D.C., and quote averages represent the mean price for a given coverage level and geographic area. To ensure data reliability, only insurers meeting minimum quote thresholds were included in the analysis.

Unless otherwise specified, quoted rates reflect the average cost for homeowners with no prior claims and good credit with a home construction year of 1980. The default coverage assumptions include:

Default Coverage Assumptions

Dwelling coverage: $300,000
Deductible: $1,000
Personal property limit: $25,000
Liability limit: $300,000

Additional data points beyond these default values are sourced from Insurify’s proprietary database. Rates are updated monthly.

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Writer: Lindsay VanSomerenInsurance and Personal Finance Writer

Qualifications:

8 years in insurance and personal finance writing
Former data scientist for U.S. Geological Survey

Lindsay is a freelance personal finance writer currently pursuing her Series 65 license. She enjoys helping readers learn money management skills that improve their lives.

Lindsay VanSomeren's bio

Editor: Chris SchaferDeputy Managing Editor, News and Marketing Content