Does homeowners insurance cover code upgrades?

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Even if homeowners insurance covers repairs to your home when you file a claim it likely won’t cover the cost of bringing the house up to current codes if the structure didn’t meet the latest regulations before the damage. However, you can often add this coverage as an endorsement on your home policy.

For example, many East Coast homeowners had to elevate their homes or rebuild them after Superstorm Sandy struck in 2012. Houses that needed to be rebuilt had to meet current sea level elevation requirements and all other building codes, and home insurance often didn’t cover it.

Make sure you know what your home insurance covers for code upgrades, particularly if you own an older home.

Key Takeaways

Building code coverage covers the cost of bringing your house up to current codes if a disaster strikes.
Building code coverage is not included in homeowners insurance but you can add it to your policy.
Adding building code coverage to your policy will come at an additional cost.

What is building code coverage?

Building code coverage is supplemental insurance coverage that you can add to your homeowners insurance policy. It covers the cost of keeping your home up to code if it’s damaged, but it comes at an additional cost.

“It’s almost like having gap insurance on your car,” says Armstead Jones, a Baltimore-based strategic real estate advisor for Real Estate Bees, an online real estate platform. Just as gap insurance will cover the difference between the value of your car and what you owe should it be totaled, building code insurance will pay for required updates that aren’t covered by a homeowners policy as part of a claim.

Without this coverage, you may have to pay for many of the costs of repairing or rebuilding your home on your own.

Many consumers don’t realize this isn’t included in their standard coverage, and they don’t learn about it until they file a claim.

Unless you’re in the construction trades, you’re probably unaware of how building codes have changed through the years. After all, you’re not required to update the house every time a code is changed. But once you rebuild, all the current regulations come into play. Having building code coverage prepares you for this.

Building codes vary by location and often change as the result of disasters, such as earthquakes or floods.

Many new codes were created after the 1906 San Francisco, 1933 Long Beach, 1971 San Fernando and the 1994 Northridge earthquakes in California, for instance. New building standards to protect homes better from wildfires were developed after the 2003 and 2007 Southern California wildfires. New construction standards have also been set in flood zones in many parts of the country.

Older homes are more expensive to bring up to code.

A real-life example of building code coverage in action

A fire in Juan and Cindy’s house caused significant damage to the kitchen, dining room, garage and a second story bedroom and bathroom. While the house wasn’t totally destroyed, it needed a significant renovation and could not be occupied while work was completed.

The couple’s home was older with electrical wiring, outlets and a panel that did not meet current code standards. Because of the extent of the repairs needed, Juan and Cindy were told they would need to update the electrical work throughout the entire house before a certificate of occupancy would be issued.

Their regular homeowner’s policy would only cover electrical work in the damaged rooms, and the couple were quoted $13,500 to bring the rest of the house up to the current electrical code standards. Fortunately, they had purchased a building code endorsement with their policy, and this add-on paid for the additional work minus a $500 deductible.

Do you need building code protection?

Building code protection is a valuable addition to your homeowners insurance policy so that you never have to pay out of pocket if your local building codes change. It is especially valuable to homeowners who live in an older home, where there is a higher chance the home isn’t up to code.

The Federal Emergency Management Agency, which offers homeowners with flood insurance $30,000 of “Increased Cost of Compliance” coverage to help pay for the elevation, can help. However, that’s often not enough to cover the cost.

“Hopefully you never have to use it,” Jones says. But if you do, building code insurance can save you a significant amount of time and stress.

How much building code coverage do you need?

It depends. Homes that cost over $500,000 may be able to get unlimited coverage. But in some states, the amount you can get is capped. For example, in Florida coverage is capped at 30% of dwelling insurance coverage.

Some other home insurance policies, meanwhile, include a small amount of coverage for building code upgrades, and others include no coverage. That doesn’t mean you have to go without. To get coverage for building code upgrades, you can buy law and ordinance insurance as an add-on to your home insurance policy.

The price of this coverage can vary depending on several factors, including the age of the property, according to Jones.

Review your home insurance policy with your agent to determine whether you have coverage for building code upgrades and if you should purchase additional coverage. You may especially need it if you live in an older home or an area where building codes have changed a lot, such as coastal and earthquake-prone areas.

Nupur Gambhir

Managing Editor

Nupur Gambhir is an insurance expert and managing editor of Insure.com. She specializes in life and health insurance content, and has experience as a marketing consultant.