Q

What is loss of use coverage in home insurance?

A

Loss of use coverage is the part of your home insurance that pays for your increased living costs, like hotel stays or restaurant meals, if your house is badly damaged and you need to live somewhere else temporarily.

Pat Howard 1600

By 

Pat Howard

Pat Howard

Senior Editor & Licensed Home Insurance Expert

Pat Howard is a senior editor and licensed home insurance agent at Policygenius, where he specializes in homeowners insurance. His work and expertise has been featured in MarketWatch, Real Simple, Fox Business, VentureBeat, This Old House, Investopedia, Fatherly, Lifehacker, Better Homes & Garden, Property Casualty 360, and elsewhere.

Updated January 11, 2022 | 4 min read

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In addition to covering direct damage to your home, homeowners insurance also covers indirect financial loss as a result of the damage. That means if your home is damaged or destroyed by a covered peril and you’re not able to live there, your policy’s loss of use coverage can help pay for temporary rentals, storage or moving costs, and other additional living expenses while your home is being repaired or rebuilt. 

Also known as additional living expenses (ALE) insurance or Coverage D, loss of use coverage will make payments for as long as it takes to repair or rebuild your home, or until you reach your policy’s coverage limit — whichever happens first. 

Key Takeaways

  • If your home is severely damaged by a covered loss and you need to stay somewhere else temporarily, loss of use coverage can reimburse you for increased living costs while your house is being repaired or rebuilt.

  • Expenses that are typically covered include hotel stays, temporary rentals, restaurant or grocery bills, dry cleaning, and other essential costs.

  • Loss of use coverage also includes rental income protection if you’re unable to rent out your property after a covered loss.

  • Loss of use coverage is typically 30% of your policy’s dwelling coverage limit.

What is loss of use coverage and what does it cover?

Loss of use coverage is the portion of homeowners insurance that reimburses you for indirect financial losses after a covered disaster. This protection includes three distinct types of coverage: additional living expenses (ALE), fair rental value coverage, and civil authority prohibited use coverage.

Additional living expenses (ALE)

If your house is severely damaged by a covered loss and you’re forced to relocate temporarily, additional living expenses can help pay for additional living expenses you require to maintain your normal standard of living.  

For example, if you’re forced to flee to another state due to a raging wildfire, you’re likely going to spend money on fuel, hotel stays, and other necessary living expenses while you’re away from home. This coverage essentially pays the difference between your normal monthly budget for essentials and what you’re having to spend while your house is uninhabitable. That means if you normally spend $200 a week for food but you’re now having to spend $300 because you’re eating out more, you’d be reimbursed for the $100 additional weekly expense.

Coverage lasts as long as it takes to repair or rebuild your home or until your policy limits are exhausted — whichever amount of time is shortest. If you permanently relocate to a new home rather than rebuild or repair your damaged home, coverage will apply until you’re settled in at the new location.

Fair rental value  

If a room you normally rent out is damaged by a covered loss and you’re no longer able to collect rent, fair rental value coverage replaces the rent payments you’re not able to collect. Coverage is provided for as long as it takes to repair the damaged portion of the rental property or a maximum of 12 months — whichever happens first. 

Civil authority prohibited use  

If a neighbor’s residence is damaged by a loss that’s covered by your policy and a civil authority — meaning the government — prevents you from using the property, your policy will pay for any additional living expenses or fair rental value reimbursements for no more than two weeks.

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What expenses are covered by additional living expenses (ALE)?

Your policy will likely specify the type of expenses you’re able to file a claim for — usually it will come down to whether or not the expense is “essential” or “necessary.” But generally speaking, your insurance provider will pay for the following:

  • Hotel stays

  • Temporary rentals

  • Additional fuel or mileage expenses

  • Additional grocery or restaurant bills

  • Rental cars

  • Transportation costs

  • Dry cleaning expenses

  • Storage units

  • Daycare costs

  • Pet boarding

What is not covered by loss of use coverage?

There are several types of damage or loss that are not covered by loss of use coverage. For example, damage due to maintenance issues generally isn’t covered. So if you’re forced to stay in a hotel for a couple of weeks due to a pest infestation, you likely wouldn’t be reimbursed for the hotel stay or the extermination.

Additionally, you won’t be covered for the following:

  • Flooding: Homeowners insurance doesn’t cover damage caused by flooding. So if your house becomes uninhabitable due to a flood, you won’t be covered for the damages or loss of use. 

  • Earthquakes: Homeowners insurance also won’t cover damage caused by earthquakes. So if your house is damaged in an earthquake and you don’t have separate earthquake insurance, you’ll have to pay for repairs and temporary living costs out of pocket.

  • Continuing expenses: Loss of use coverage doesn’t reimburse you for expenses that you were already responsible for before the loss. Monthly mortgage payments, property taxes, electric bills, and other static expenses would not be covered. 

How much loss of use coverage do I need?

Loss of use coverage is typically set at 30% of your home’s insured value, or your dwelling coverage limit. In other words, if your home has $400,000 in dwelling coverage, your ALE coverage will be $120,000 for each loss. 

That means if a tornado destroys your home and you need to live somewhere else, you’ll have $120,000 in ALE coverage until either your house is rebuilt or you find a new permanent residence.  

Some insurance companies, like Chubb and AIG, may provide either higher or unlimited loss of use limits. However, most cap this coverage at 30%. 

How to file a loss of use claim

If you plan on filing a loss of use coverage claim, there are some things you can do to make the process quicker and receive your payment faster. 

  • Hold onto receipts: Be sure to hold onto all of your receipts while you’re away from home. In order for your insurance company to corroborate your purchases and send you a check, you’ll need proof of the expenses you’re claiming.

  • Ask about payment options: Your insurance company typically sends you a reimbursement check after you’ve already racked up a lot of your expenses. There are some extenuating circumstances, like if you’re short on cash or if your necessary expense requires a large sum of money, where your insurer may provide you with a loss of use check up front. But you’ll generally be paid on a monthly basis for the previous month’s expenses.

  • Begin filing your claim: You’ll be instructed to fill out a form detailing what your normal monthly spending looks like in terms of fuel, food, housing, and any other essential living expenses. You’ll likely be asked to submit proof in the form of bank statements or receipts. 

  • Upload receipts: To determine how much you’re owed on the claim, your insurer will need to know how much you’re currently spending on essentials while you’re away from home. Be sure to upload any applicable receipts so you can be reimbursed for any additional living expenses. 

If you’re filing a fair rental value claim for lost rental income, the process is a little different. You’ll need to provide your agent or claims representative with all forms — bank information, lease agreements, tax forms — proving that the damaged property was a source of income. The payment you receive will likely be based on how much you were charging for rent before the loss occurred. 

Frequently asked questions

What is loss of use coverage in condo insurance?

Condo insurance provides the same type of loss of use coverage that you’ll find in a standard home insurance policy. The only difference is how your coverage limit is calculated. In a standard HO-6 condo owners policy, your loss of use coverage limit is 50% of your personal property (Coverage C) limit. So if you have $100,000 in personal property coverage, you’ll have $50,000 in loss of use coverage.

Will loss of use coverage cover me after a hurricane?

Yes. If your home is badly damaged by hurricane winds, loss of use coverage can cover your additional living costs while it’s being repaired. However, if your house is uninhabitable due to flood damage, coverage likely won’t apply since flood damage is not covered by home insurance.

What does uninhabitable mean?

Loss of use coverage only applies if your home is deemed “uninhabitable” or “unfit to live in.” This basically means if your house doesn’t meet basic habitability standards — heat, plumbing, electric, or running water — it will likely be deemed uninhabitable. Additionally, if your kitchen is inaccessible and you cook often, or there are no working bathrooms, that would also qualify as uninhabitable.