Ask Austin Insurance Group: Building Ordinance or Law

“Building Ordinance or Law — 50% of Coverage A. What is “Coverage A” and what is the amount?  My current policy simply identifies $5k for the coverage. How does your policy differ, if at all?  Uncertain what the coverage  actually is…”— S.L. (Austin, Texas) 3/18/16

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What is Building Ordinance or Law on a Texas Home Insurance Policy?

Building Ordinance or Law Coverage applies whether you suffer a total or partial loss to the structure. This valuable coverage can save you thousands of dollars in upgrades that you would have to pay out of pocket. Ordinance or Law limits are usually a percentage of your Coverage A Dwelling limit. For example, if the Dwelling amount on your home is $200,000 a 50% option will allow up to $100,000 in upgrades due to building code requirements; a 25% option will allow up to $50,000 and some companies offer a flat coverage amount.

Did you know rebuilding your home to meet current codes or demolishing what is left of it might increase your costs up to 50%? Your state or city may have laws or building codes that greatly affect the reconstruction of a damaged home. These building codes change over time and they usually become more demanding. If a windstorm or other loss event damages your home, these local ordinances may increase the cost to rebuild, repair or demolish your home and add to your out-of-pocket costs. Building Ordinance or Law Coverage can help protect you from these increased costs due to new regulations.

Most homeowners policies will limit the amount of coverage for the following increased costs caused by adherence to current ordinance or law.

  • The construction, remodeling, demolition, renovation or repair of a structure or building
  • The reconstruction or demolition of the undamaged portion of a covered structure or building
  • The removal, remodeling or replacement of the portion of the undamaged part of a structure or building needed to complete your repair

Here is an example of how the Building Ordinance or Law Coverage applies. Your home sustains damage to the roof when a tree falls into your bedroom during a windstorm. Roof repairs will probably require costlier shingle replacement and minimally, hurricane roof straps or specific size roof nails. These more expensive items will add significant costs to your repair bill. Building Ordinance or Law Coverage pays for those costs, which insurance carriers would otherwise consider an improvement to your property absent the coverage. Without this endorsement, you must pay the additional costs. Add these costs to your deductible and you can see why this coverage can be critical to your budget.

As safety research grows, building codes reflect that new knowledge of how to make property safer and better able to withstand wind and other natural forces. The older your home, the more likely it is to have code upgrades after a loss. For example, a home built in 1990 would have had much less stringent local building codes governing your plumbing, electrical, or roof systems. To bring a 1990 home up to today’s standards would cost more than simply repairing the damage.

You don’t want to learn the hard way, after you have suffered a loss. Talk to your agent today about this important coverage. If you would like to learn more about Homeowners Insurance from Austin Insurance Group, please contact our office at 512-339-2901 or get a quote online.

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Ask Austin Insurance Group: All Risk Insurance or Named Peril

All Risk Insurance vs. Named Peril Policies

What is the difference between all risk insurance policy and named peril policies?  Read more to find out the difference and why we recommend the all risk home insurance policy.

From Ask an Agent

“I highly appreciate your offer to assist clarifying home insurance for my house. Will you please check out the attached offer and tell me what is different than AIG one?” — W.S. (Austin, Texas) 3/9/16

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Basically, insurance companies write two kinds of policies for homeowners:

  • all risk insurance
  • named peril policies

All Risk Insurance Policies

All risk insurance policies are also referred to as an open peril policy or comprehensive policies. (All risks are typically HOB and HO3 policy types) vs. (Named peril policies, HOA policy types).

An all-risk insurance or open peril policy covers everything that’s not “excluded.”  Every thing is covered except what is specifically excluded in the policy. The all-risk insurance policy usually costs more than the named peril policy because it offers more coverage and is more comprehensive. Under an all-risk policy, the burden is on the insurance company to prove that the peril causing the damage is not excluded.  If it’s not excluded, coverage applies. Since the limitations and exclusions are the key to determining what coverages are provided by an all-risk policy, it could be called a “named exclusions” coverage. The most common perils excluded in an all-risk policy include:

  • Earthquake or earth movement
  • War
  • Flood, seepage, mudslide, and sewer backup (and sometimes surface water that builds up after heavy rains, underwater springs, groundwater, burst water pipes, overflowing toilets, and wind or wave-driven water)
  • Boiler explosion
  • Governmental seizure or destruction of property
  • Off-premises utility service interruption
  • Building ordinance or law
  • Seepage or leakage of water over a period of time
  • Electrical damage to electrical devices
  • Wear and tear; rust, corrosion, fungus, decay, deterioration, hidden or latent defect smog; settling, cracking, shrinking, or expansion; nesting, infestation or release of secretions by insects, birds, rodents or animals
  • Damage to building interiors by rain, snow, sleet, ice, sand, or dust unless the roof or walls are first damaged – except damage by thawing of snow, ice or sleet
  • Mechanical breakdown
  • Theft of building materials and supplies not yet attached to buildings
  • Employee dishonesty
  • Pollution

Named Peril Policies

Named peril insurance covers only  what is specifically noted in the policy. For example, if it doesn’t say you’re covered for backup of sewers or vandalism damages, you are not covered. The named peril insurance policy only covers certain and specific perils, and this type of policy is usually less expensive  than an all risk home insurance policy.

A typical named peril policy typically would cover:

  • fire
  • hail
  • windstorm
  • aircraft
  • vandalism
  • smoke

Earthquake and Flood insurance are two other common type of named peril policies and are written as separate policies.  When your property insurance coverage is written on a named peril basis, the burden is on the insured.  You must prove that one of the named perils caused your loss

Which coverage is the better choice?  Lenders recommend an all risk home insurance policy.

If you’re paying a mortgage, you probably do not have a choice.   Most lenders require that you protect your investment with a comprehensive policy, all-risk policy.

For others, the type of insurance to purchase should be need-based depending on the type of property you have and your location.

The advantage of an all risk home insurance policy is that it covers you in the event of a loss you did not predict. Even though it will cost more, in a world where freak accidents happen, the broader your insurance coverage, the better off you’ll probably be.

Just be sure to read the fine print so that you’re clear about the stated exclusions.

Ask Austin Insurance Group to compare policy types for you. Or visit The Texas Department of Insurance to see for yourself.

All risk insurance vs Named Peril policies - Get an Online Home Insurance Policy Quote now.

Or get a free review today, call 512-339-2901!

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