Special Homeowners Policy Endorsements
Ordinance or Law Coverage—optional endorsement under a homeowners policy that provides additional coverage to comply with current zoning, building and land use laws. Some of these coverages could include: increased repair costs, demolition or removal of undamaged parts of the building, and the damage to or loss of value to the remaining building.
For example: say you have an older home insured and it is damaged during fire. Well, perhaps building code says now you must use double pane glass and install sprinklers even though the damaged house didn't have these upgrades at the time of loss. You would have to do them to comply with current law, and this coverage is a standard exclusion under existing homeowners policies unless your policy is endorsed to cover these additional costs.
The amount of building code upgrade coverage varies policy to policy, so don't assume you have unlimited coverage. Read your policy!
Replacement Cost Coverage—this endorsement broadens the coverage under your homeowners policy. Basically, this coverage would apply to two areas under your homewoners policy: the dwelling and your personal property (your "stuff"—clothes, bedding, bikes, etc.). An unendorsed policy provides that the insurance company compensate for repair or replacement based on "actual cash value" or ACV. The formula for determining this amount goes like this: cost of item minus depreciation. So your kitchen burns down and your house is 40 years old, and so is the the stove, the formica and linoleum. The insurance company pays the claim minus your deductible and minus 40 years of depreciation, wear and tear on the above items. You are now holding the short end of the insurance stick. Good luck replacing the items with cash value depreciation.
The replacement cost coverage endorsement amends the policy so that instead of the reduced actual cash value, you get reimbursed for an item of the same "like, kind and quality." So that 40 year old kitchen with its equally old counter, linoleum, etc., gets replaced at a higher value, at the value it would cost to replace linoleum of that same grade and quality at today's prices.
Of course it costs more for a policy with replacement cost coverage (maybe 20 percent more),but in the event of a loss, you may really be clicking your heels at your foresight in paying the extra money. Then again, if you can't afford it or just don't want to pay any more than the mortgage company absolutely requires, well that is understandable to. Just know your options and needs; choose accordingly.