Understanding Insurance Claims After a Disaster
Anytime there’s any kind of natural disaster or even an individual damage to a property, a lot of times the subject goes to, “Well, how am I going to file for insurance? What’s going to happen to my home value?” Well, here’s something that’s often overlooked. There is a term in insurance contracts called ordinance of law.
The Impact of Ordinance of Law
What that means is if you have a house that was destroyed by a fire, a hurricane, or some other type of disastrous event, you’re going to file an insurance claim. Your home will have been valued based on certain criteria. For example, if you have a 2,000-foot home, they’re going to say how much per square foot it costs to build it, and they’re going to give you a certain dollar amount.
Rebuilding Costs vs. Insurance Payouts
What’s going to happen is you’re going to find that the dollar amount won’t be enough to rebuild the house in the current market. You might have theoretically built a house like the one you had, but the laws may have changed for permitting, zoning, and different types of construction requirements. You might have to have tapcons in the floor joists, certain roof bracing, or more fireproofing. The rules and laws that were in place when your house was built will likely have changed in the last 15, 20, 30, or 40 years. Your new house is going to need updated and upgraded features. Maybe the electrical system has to be more developed.
The Hidden Costs of Compliance
If your house is destroyed, you might have to cover the difference, and this is where this article comes in, saying the equity is gone. For example, if you had a house worth $500,000 with a mortgage of $250,000, you had $250,000 in equity. Well, you might only get $300,000 from your insurance company. You might have to contribute another couple hundred thousand to finish building the house up to code.
Additional Expenses Not Covered
Sometimes, it requires a new septic tank, new utilities, or a new foundation. Remember, part of the value of your home is also in the lot, so the insurance company will not account for that because your lot doesn’t get destroyed. They will only provide the part to rebuild the house.
Reviewing Your Policy for Better Coverage
Taking a look at your insurance policy to see what your coverage includes for ordinance of law is important. You may want to upgrade your coverage so you can rebuild to current standards, not older ones. You may not be allowed to build to older standards, and even if you are, you’ll have an older house in a new neighborhood. Anytime you have a claim on your house, you can expect some losses. There are a lot of exclusions to coverage in addition to your deductible, which you don’t get anyway.
Exclusions and Unexpected Costs
There might be things like debris removal or toxic waste. If you had a fuel tank that spilled, they may not cover that. They may not cover all of your personal effects if they exceed a certain amount. You want to make sure you check what your coverage actually pays for and make accommodations. You can decide if you want to handle some expenses yourself or purchase additional coverage for those things. Talk to your agent about that.
Be Prepared Before a Disaster Strikes
Don’t go in blind. Know these things in advance before you have an event on your property. Once you have a claim, you can’t change your coverage. Ordinance of law is an important term. Ask your agent or broker about it.
