One of the most common questions I am asked by someone considering buying an investment property is “What will happen to my investment if I have a fire?” If the place is completely destroyed, any decent fire insurance policy will probably protect the owner. In the event of a partial loss however, an important and often overlooked coverage may not be on the policy. In a city like Vancouver, or any city where the housing stock is older, Building Bylaws Insurance Coverage is a smart investment. When a building was built, it met the bylaws of the time but these bylaws may have changed. When there is a partial loss to a building, municipal ordinances may require that you comply with new codes - such as building with different materials, incorporating underground parking, including sprinkler systems, or adding wheelchair ramps. These requirements can turn a small loss into a devastating one because most insurance contracts exclude coverage for losses arising from bylaws or other ordinances affecting repair or reconstruction of a damaged building. If municipal authorities demand that an owner tear down the undamaged portion of a building before rebuilding, or that reconstruction can only take place if, for instance the building is equipped with a sprinkler system, then the owner will be out of pocket for the differences in cost which are not covered by their insurance policy.
Other common areas of exposure to financial loss resulting from inadequate or nonexistent “bylaws coverage” are as follows:
1. If a building suffers a loss and municipal ordinance requires that it be torn down, the owner will be responsible for the cost of demolition.
2. The owner will also be responsible for the costs of subsequently removing the debris.
3. In addition, if different quality materials must be used or alterations made to meet upgraded building standards or zoning requirements, the owner will be responsible for those costs.
Building Bylawn Coverage is inexpensive, can guard against experiencing these devastating surprises and can be purchased in the following forms:
1. Value of Undamaged Portion of Building Coverage: this covers the replacement cost value of the undamaged portions which must be torn down because of a bylaw is in effect at the time of loss.
2. Demolition & Debris Removal: this covers the costs of tearing down and carting away the debris from the damage.
3. Increase in Cost of Construction Coverage: this will cover, for example, if a building of mixed construction suffers heavy damage and ordinance stipulates that the new building be of masonry or even fire resistive construction.
Transferring the risk of loss of your assets to Insurance Companies is one way of managing risk. However, the policy is only as good as the coverage, which should be built to meet each owner’s specific requirements. Bylaws Coverages are an inexpensive way to customize your insurance policy to meet your specific needs as a property owner. This information was provided by Heather Scheibal of Reliance Insurance Agencies Ltd. For more details and specific information on this and other property insurance issues, please call Heather Scheibal at 255-4616.