Landlord insurance coverage for Chicago non legal units
Member since 2025 · 15 posts · 3 votes
Landlord insurance coverage for Chicago non legal units
Most Popular Reply
Insurance Agent · Chicago · Member since 2025 · 46 posts · 38 votes
1yQuote from @Jonathan Klemm:
Appreciate the additional informatin @Andrew Bish!
Can you explain exactly how this "Ordinance or law coverage" works? I've never heard of this before....this is completely separate from an umbrella policy, right? How much would the additional premium be?
Also, good call sharing the Chicago non-conforming ordinance, which is a bit confusing and hard to read, but worth the time to review!
Absolutely. To start it is separate from an umbrella. The umbrella is a separate policy that deals with the liability aspect, helps protect you if you are sued. Ordinance or law coverage deals with the physical damage aspect and exists as an optional add-on to a landlord or homeowners policy. Both are usually recommended, however, neither are required.
The main reason to add this coverage is because a standard policy excludes any loss or increased cost that results from the enforcement of a code, an ordinance, or a law that regulates or requires the construction, demolition, remodeling, renovation, or repair of property or the removal of its debris. This exclusion works as a bit of a catch-all saying, we're not insuring illegal structures. However, what about structures grandfathered into modern building codes? They are fine to continue being occupied according to the local ordinance, but you cannot build new non-conformities.
The amount of insurance for your building is determined by what the insurance company determines it would cost to rebuild your building in "like kind and quality" or the replacement cost. Since you cannot build new non-conformities, if your building was destroyed, your insurance company would not be able to deliver you a new building in the same quality and condition it was before destruction. They would have rebuild the building in accordance with modern ordinance or laws. This would at least require additional building materials and may necessitate other soft costs associated with redesigning the building.
This is not the most expensive add-on you can get. Just to throw a few number out there I have a quote pulled up, premium is $1800, replacement cost is about $480k, taking the additional 10% ordinance or law coverage is only $70, and if I remember correctly the home is 1950s or so. Of course this could depend on many factors but it is not the most outrageous endorsement.
8 Replies
- Attorney · Salt Lake City, UT · Member since 2025 · 144 posts · 180 votes1y
Hi Eva!
Landlord insurance policies in Chicago—and generally across the U.S.—typically exclude coverage for illegal or unpermitted units, including non-legal basement apartments. While some insurers might still issue a policy that covers the building as a whole, claims can be denied if the loss is connected to the unpermitted unit or if the insurer determines that the existence of the illegal unit was a material misrepresentation. For example, if a fire starts in the illegal basement unit due to unpermitted electrical work or if a tenant is injured there, the insurer may use the illegality as grounds to deny the claim entirely or limit their liability. This can leave the landlord personally exposed to property damage costs, liability suits, or even municipal fines. It's crucial for landlords to disclose all rental units to the insurer and consult with both legal and insurance professionals to understand the specific risks and coverage implications. In Chicago, where illegal basement units are common but increasingly scrutinized, relying on insurance to cover such spaces without formal legalization poses a significant financial risk.
Note: This information is for educational and informational purposes only and does not constitute legal, tax, financial, or investment advice. No attorney-client, fiduciary, or professional relationship is established through this communication.- Member since 2025 · 15 posts · 3 votes1y
@Lauren Robins Thank you for your response? So are all these investors that own those units just taking a risk ? How do they protect themselves?
- Member since 2025 · 15 posts · 3 votes1y
Thank you for your response? So are all these investors that own those units just taking a risk ? How do they protect themselves?
- Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes1y
Hi @Account Closed made some good points about coverages and how the insurance companies may look at illegal units.
However, I would like to emphasize the distinction between non-conforming and illegal units. An illegal unit is not legal because unpermitted work was completed, and the city was made aware, issuing a violation citation. VS. a non-conforming unit, which means "non-conforming unit was lawfully established at a time when it complied with the zoning and building regulations in effect. However, due to subsequent changes in zoning ordinances or building codes, it no longer meets current requirements."
There are thousands of illegal and non-conforming units here in Chicago, but each investor needs to weigh their risk vs. reward appetite.
Quality Builders4.966 Reviews- Member since 2025 · 15 posts · 3 votes1y
@Jonathan Klemm thanks for clarifying that difference. looks like you are a GC as well.
if you were to add a unit ( let's say by converting a basement of 1000 square feet into a living space) and you do it the right way, draw permits and all that.
What would you say cost of construction is compared to doing work without permits? Is it double ? Triple?
- Insurance Agent · Chicago · Member since 2025 · 46 posts · 38 votes1y
Hello @Account Closed for pointing out legal and illegal non-conforming units.
Insurance will only provide coverage if the non-conforming space is legal. Something to watch out for is if a total loss were to occur or significant enough damage takes place, the building will need to be rebuilt in accordance with modern laws and ordinances. There is an optional endorsement called ordinance or law coverage, typically 10% or 25% of the dwelling coverage. This is additional money specifically meant for additional costs associated with the difference between rebuilding the building in "like kind and quality" and bringing the building up to modern code. There may still be some degree of risk there. It is a very fair question, is an extra 25% of the dwelling coverage enough to raise the ceiling or increase finished floor area if needed?
Below is part of the Chicago city ordinance that more thoroughly defines non-conformities and how they can lose their status.
https://codelibrary.amlegal.com/codes/chicago/latest/chicago...
- Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes1y
Appreciate the additional informatin @Andrew Bish!
Can you explain exactly how this "Ordinance or law coverage" works? I've never heard of this before....this is completely separate from an umbrella policy, right? How much would the additional premium be?
Also, good call sharing the Chicago non-conforming ordinance, which is a bit confusing and hard to read, but worth the time to review!
Quality Builders4.966 Reviews- Insurance Agent · Chicago · Member since 2025 · 46 posts · 38 votes1y
Quote from @Jonathan Klemm:
Appreciate the additional informatin @Andrew Bish!
Can you explain exactly how this "Ordinance or law coverage" works? I've never heard of this before....this is completely separate from an umbrella policy, right? How much would the additional premium be?
Also, good call sharing the Chicago non-conforming ordinance, which is a bit confusing and hard to read, but worth the time to review!
Absolutely. To start it is separate from an umbrella. The umbrella is a separate policy that deals with the liability aspect, helps protect you if you are sued. Ordinance or law coverage deals with the physical damage aspect and exists as an optional add-on to a landlord or homeowners policy. Both are usually recommended, however, neither are required.
The main reason to add this coverage is because a standard policy excludes any loss or increased cost that results from the enforcement of a code, an ordinance, or a law that regulates or requires the construction, demolition, remodeling, renovation, or repair of property or the removal of its debris. This exclusion works as a bit of a catch-all saying, we're not insuring illegal structures. However, what about structures grandfathered into modern building codes? They are fine to continue being occupied according to the local ordinance, but you cannot build new non-conformities.
The amount of insurance for your building is determined by what the insurance company determines it would cost to rebuild your building in "like kind and quality" or the replacement cost. Since you cannot build new non-conformities, if your building was destroyed, your insurance company would not be able to deliver you a new building in the same quality and condition it was before destruction. They would have rebuild the building in accordance with modern ordinance or laws. This would at least require additional building materials and may necessitate other soft costs associated with redesigning the building.
This is not the most expensive add-on you can get. Just to throw a few number out there I have a quote pulled up, premium is $1800, replacement cost is about $480k, taking the additional 10% ordinance or law coverage is only $70, and if I remember correctly the home is 1950s or so. Of course this could depend on many factors but it is not the most outrageous endorsement.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.