Bylaws and Home Insurance: Expectations vs. Reality

Imagine a situation where you’re out to a fancy dinner in Canmore to celebrate an important milestone. Near the end of the dinner, you get a frantic call from a neighbour. Your home is on fire! Thanks to Calgary’s great fire fighting services, only your kitchen has significant fire damage. However, there is still smoke and water damage to other areas of your home.

It would be quite a shock, but luckily an adequate home insurance policy will cover most of the costs. You would be compensated for the clean-up, tear-down, and reconstruction of the damaged areas as well as for the replacement of your belongings. You’d also receive some help with additional living expenses if you needed to vacate your home during this process. However, the one thing you may not be covered for is the costs to conform to the updated bylaws of the city. This can be a huge expense depending on when your home was built and should be a concern for all homeowners, as municipal regulations are always changing. For example, if your home had been built 50 years ago, there would be a lot of updates you would be required to comply to – and these upgrades wouldn’t be covered by your home insurance.

Bylaws and home insurance aren’t often thought of together, but it’s important you consider the impact of municipal regulations on your home insurance and finances in the event a catastrophe occurs. While the expectation is that bylaws would be covered in your home insurance, the reality is that they’re often not included in standard coverage.

Bylaws and Home Insurance: How Home Replacement Cost is Affected

Bylaws are difficult because they are constantly changing. These changes are necessary to help protect lives and infrastructure, however, they can be a nightmare to deal with when you’re rebuilding a home after an insured claim. That’s because most standard home insurance policies agree to rebuild your home nearly exactly like it was. However, this is sometimes impossible as bylaws have changed to prohibit certain designs or materials.

For example, if an Edmonton home that was built 30 years ago were to be rebuilt after an insured loss, the reconstructed property would need alterations to comply with the current municipal bylaws. Say, hypothetically, it was now regulation for all homes to install a sprinkler system. These can be up to $2,500 or more. Since this was not a part of the home which was destroyed in the first place, your insurer probably won’t compensate you for this additional cost. Generally, if a property is over a decade old it no longer meets the requirements of the present public regulations.

Basically, bylaws increase your home’s replacement cost. However, these changes are not covered as it was not originally part of your home as per your insurance contract.

Bylaws and Home Insurance: The Exceptions

There are two exceptions where bylaws wouldn’t impact your insurance coverage:

1. Your insurer pays out actual cost value or replacement cost instead of rebuilding.
2. You have an add-on that covers bylaws.

In the first case, your insurer does not require you to rebuild your house as-is. Instead, your insured claim is paid out based on your settlement option and your policy limits. As the insurance company isn’t rebuilding the house, you’re free to construct the building you want. Of course, you’d still have to follow the bylaws, but you could alter your rebuild to be within your budget.

In the second case, you have an endorsement or add-on coverage that would cover the cost of updating to current bylaws. So, if you had an insured loss and needed to rebuild your home, the difference in costs to be compliant to municipal regulations would be covered. Otherwise, you’d be on the hook.

Some insurers are now including bylaw coverage in some of their comprehensive home insurance packages. Check with your broker to see if bylaws are covered.

In order to protect yourself, you should discuss your options for covering bylaw update expenses with your independent insurance broker. Insurers and policies differ from company to company; some companies will include this coverage, where a lot of others will request that you add it to your policy.