Loss of use coverage may reimburse you for additional living expenses while your home is repaired or rebuilt. It may also reimburse you for lost rental income.
Homeowners insurance is protection for your home and personal property against certain hazards covered by your policy, like fire, theft, or vandalism. If your home becomes uninhabitable or unsafe for you to stay in after a covered loss, your insurance policy may also cover your living expenses if you’re forced to live somewhere else while your home is being repaired or rebuilt.
Also known as loss of use coverage or additional living expenses (ALE) or Coverage D in your home insurance policy, this type of coverage is a part of every standard policy and helps you pay for everything from fuel expenses to groceries and hotel bills while your home is being repaired. If you rent out your property, loss of use coverage may also help you recover lost rent if a covered loss requires your tenants to live elsewhere. If the government prohibits you or your tenants from using the insured property, that lost rent may also be covered.
Loss of use coverage is a component of homeowners insurance that can pay for you to live elsewhere, like a hotel, while your home is being repaired or rebuilt after a covered loss
Loss of use can also pay for additional living expenses you accrue while you’re displaced from your home, like additional food expenses or storage unit costs
If you’re a landlord, loss of use can cover for your loss rental income. If the government prohibits you or your tenants from returning to your home after a disaster, loss of use coverage can also cover those expenses
Your loss of use coverage limit is typically about 20% to 30% of your home’s insured value
Loss of use coverage is a component of homeowners insurance that protects you in three different ways: it covers any increases in living expenses, like the cost of a hotel, while your home is being rebuilt or restored, it reimburses you for lost rental income, and it may also reimburse you for lost rental income or additional living expenses if a local authority prohibits you or your tenants from returning to your property.
If you’re forced to leave your home and live elsewhere for an extended period of time, your loss of use coverage can pay for additional living expenses that you accrue. For example, if your house is being rebuilt after an electrical fire, your loss of use coverage can pay for a hotel while your home is being fixed. If you have to start eating at restaurants more often because your hotel doesn’t have a kitchen, your loss of use coverage can also pay for those additional living expenses.
But additional living expenses coverage doesn’t mean that you can go wild and expect to get reimbursed for every last purchase. Many policies have strict limitations over what they’ll pay for, and it often boils down to whether or not the expense was “necessary.”
Furthermore, your insurer may impose a dollar limit on specific “necessary” expenses, like lodging, for example. Your claims representative will likely give you hospitality resources and point you toward appropriate living accommodations, like a reasonably-priced rental unit rather than a luxury hotel.
Expenses you can generally expect your insurance company to reimburse you for may include, but aren’t limited to:
Paying rent for a temporary apartment
Additional fuel or mileage expenses
Additional food expenses
Renting a car
Storage unit bills
Boarding your pet
If you’re a landlord and you’re no longer able to collect rent because your property was destroyed by a covered peril, the loss of use coverage component of your homeowners policy can reimburse you for lost rental income for up to 12 months after the covered loss took place.
This is a section of your loss of use coverage that covers both your additional living expenses and fair rental value reimbursements for a certain number of days if a local authority or a physical impediment prevents you or your tenants from accessing your property.
Say, for example, that your neighborhood was recently ravaged by a tornado. Maybe your home wasn’t damaged, but the roads, the area surrounding your home, and utility poles nearby your home are still hazardous.
Not only may the local government forbid you from returning to your home, but even if they didn’t, you may still not want to return until everything gets cleaned up and back to normal. If that’s the case and you need to be away for up to 30 days, be sure to file a prohibited use claim under the loss of use section of your policy.
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Your loss of use coverage limit is typically about 20% to 30% of your home’s insured value, or your dwelling amount. That means if your home is insured for $400,000, your additional living expenses coverage will typically be anywhere from $80,000 to $120,000. If you happen to exceed your loss of use coverage limit and you still have additional living expenses, you may need to pay for those out of pocket.
Some premier insurers, like Chubb and AIG, offer unlimited loss of use coverage in standard policies to policyholders, meaning there’s no limit to how much they’ll reimburse you for reasonable expenses while your home is being restored or rebuilt after a covered loss. However, most insurers will only cover you up to the 20% to 30% limit, the amount of which can be found on your policy’s declarations page, where it may be labeled “Coverage D”.
It depends on your insurer and the kind of policy you have, but your deductible is generally waived for covered loss of use claims. However, you’ll still have to pay a deductible for the dwelling or personal property parts of your claim.
If you plan on filing a loss of use claim, be sure that you’re holding onto all receipts that can be considered “reasonable life expenses.” In order for your insurance company to corroborate your expenses and send you a check, you need proof of what you’re claiming.
Your reimbursement check is typically sent to you 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.
To submit a loss of use claim, you have a few options:
You can contact your homeowners insurance agent directly
Go to the claims section of your carrier website
Call your insurance company’s customer claims department
You’ll be instructed to fill out a form where you detail your “normal living expenses”; the amount you typically pay for gas, food, rent and any other applicable expenses every month. Whatever those expenses total out to is the amount that’s subtracted from whatever additional living expenses you incur on a monthly basis.
If your normal monthly expenditures on necessities was $1,500, but you spent $2,000 last month while your home was being rebuilt, your insurer may send you a $500 check if the extra expense was related to your alternate living arrangements.
If you’re claiming lost rental income because of covered property damage, the process is a little different. You’ll want 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. Similar to additional living expenses, your insurance company may send you a monthly fair rental value check to tide you over while your property is being rebuilt.
Just like the other coverages in your policy, in order to use your loss of use coverage, the damage that caused you to flee your home must be covered by your policy. If your home was overtaken by a hoard of cockroaches, for example, and you were forced to live in a hotel for a month during extermination, your homeowner’s insurance wouldn’t pick up the tab for the hotel or the extermination, as pests typically aren’t covered by your policy.
You also can’t file a loss of use claim under the following circumstances:
A flood leaves your home uninhabitable: Homeowners insurance never covers flooding, if you want protection against flood damage you should purchase flood insurance
Earthquake damage: Homeowners insurance excludes earth movement of any kind. You may be able to add an endorsement to your homeowners policy for earthquake protection, or you can purchase earthquake insurance
Pest infestations: Homeowners insurance doesn’t cover maintenance issues
Unreasonable expenses: As we mentioned, loss of use covers “necessary expenses”, meaning you can’t stay at a 5-star hotel and try to get reimbursed for it
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