What is ordinance or law coverage?

Overview: Ordinance or law coverage is an optional add-on to your homeowners insurance that may help cover extra costs when rebuilding after damage. Since building codes can change regularly — especially for older homes — reviewing this coverage before signing can help you plan for potential extra costs.

Ordinance or law coverage may be included in some homeowners insurance policies or offered as an optional add-on by others. This coverage can help with extra costs when rebuilding after damage, especially since building codes often change — particularly for older homes. It’s important to check with your insurance company to understand how they handle this coverage and review your options before agreeing to your insurance policy.

Homeowners insurance usually provides coverage for covered losses from fire, theft, weather and other risks, paying to repair or rebuild your home after a loss. However, many homeowners may find that building codes have changed since the last time they modified their home. If your home needs to be brought up to code as a result of a covered loss, ordinance or law coverage can help with the added costs during repair or rebuilding.

What does ordinance or law coverage help with?

This coverage may help pay the extra cost to rebuild or repair your home to meet current building codes and zoning laws in force at the time of the loss. It can help cover the difference between restoring your home to its construction standards before the loss and the additional expense of complying with today’s codes.

It can be helpful because codes frequently update to improve safety, energy efficiency and resilience. Older homes may need costly upgrades to meet new standards, especially in areas prone to severe weather.

The difference between ordinance and law

Ordinance or law coverage may help cover expenses to comply with local rules (ordinances) and broader state or federal laws.

The table below illustrates the differences between an ordinance and a law:

Closing the code-compliance gap

If your home is damaged, a standard policy may cover rebuilding to its previous state. But if today’s codes require changes — like new wiring or fire resistant materials — resulting from the covered loss, those costs may not be covered without ordinance or law coverage.

Example: A 40-year-old home damaged by fire may face stricter building codes when rebuilt. While a homeowners policy may offer coverage for restoring the home, the inspector might not approve outdated standards, creating a costly gap. Ordinance or Law coverage may help cover some or all of these additional costs, subject to policy limits.

Why ordinance or law coverage may be worth considering for all homeowners

Older homes usually have bigger gaps between old and new codes, but even newer homes may face required changes if codes have been updated since they were built. Codes are commonly updated every few years, so a home built 10 years ago might already need changes in the event of a covered loss.

This coverage may also help with demolishing undamaged areas if required as a result of a covered loss, as well as required changes to plumbing, electrical systems, safety features and required accessibility or environmental improvements.

How coverage limits work

Ordinance or law coverage (OL) limits are often set as a percentage of your dwelling coverage, commonly 10%, 20% or 25%. This means your available ordinance or law limit may adjust if your dwelling coverage changes.

Option OL addresses various code-related expenses, such as costs for upgrading damaged areas, demolition and system or structural improvements required by current building codes—all covered within the separate ordinance or law limit.

Example: If your dwelling coverage is $300,000 and your ordinance or law limit is 20%, you may have up to $60,000 for code-related costs. Any costs beyond that would typically be your responsibility.

Choosing a limit depends on your home’s age, local building codes and construction costs in your area.

Common frequently asked questions about ordinance or law coverage

Here are some common misconceptions about this coverage.

• Is it just for brand new homes? This coverage often benefits older homes because they typically face a larger gap between their original construction standards and current code requirements. Newer homes may still need code upgrades in some situations, but the gap is typically smaller.
• Does it cover routine repairs or cosmetic upgrades? Coverage is intended to cover only code-mandated changes resulting from a covered loss, not routine repairs or cosmetic improvements. Cosmetic choices and standard maintenance fall outside of this coverage’s scope.
• Is it automatically included in a policy? Whether ordinance or law coverage is automatically included depends on your insurance carrier and state. Some policies include it by default, while others offer it as an optional endorsement. If included, you may have options to purchase increased limits for an additional premium.
• Does it cover any upgrade? Coverage is intended to reimburse only those changes required by law or local ordinance due to a covered loss, not voluntary improvements chosen by the homeowner.
• Are there limits or exclusions? Coverage may not protect against all code-related expenses. Costs exceeding the policy limit are usually the homeowner’s responsibility.

Questions to ask your insurance agent

Since Ordinance or Law coverage may vary significantly between policies and jurisdictions, it might be helpful to discuss the specific details of this protection with a local agent. Questions to ask them could include:

• Is Ordinance or Law coverage included in my policy or do I need to add it?
• How much Ordinance or Law coverage should I have?
• Are there sub-limits for demolition or undamaged portions of the home?
• How do local building codes impact potential costs?
• Does this coverage apply to environmental, or accessibility upgrades required by law?
• What happens if the actual cost to comply exceeds my coverage limit?
• Can I adjust the Ordinance or Law coverage limit based on my home’s age and location?

Protecting a home's future

Building codes continuously evolve as construction standards improve and new risks emerge. Whether your home was built decades ago or just a few years ago, you could run into code-related expenses during repairs or rebuilding. If you have questions or want to review your coverage, your local State Farm agent is here to help.