What is loss of use coverage in home insurance?

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: 

1. Additional living expenses 

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

Here’s an example.  

Say 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. 

Remember that ALE only pays for reasonable expenses — that means if the damaged residence is a $1,600 one-bedroom apartment, your insurer probably won’t pay for you to rent out a luxury one-bedroom penthouse for $3,000 a month.

2. 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 comes first. 

3. Civil authority prohibited use  

If there’s a natural disaster and the government orders you to leave your home and relocate temporarily, your policy will pay for any additional living expenses or fair rental value reimbursements for no more than two weeks.

What can additional living expenses (ALE) pay for?

Your policy should specify the types of expenses you’re able to file a claim for — usually it comes down to whether or not the expense is necessary. 

But generally speaking, insurance companies typically cover 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

When does loss of use coverage kick in?

We break down what types of damage to your home triggers loss of use coverage — and when you'll have to foot additional living expenses yourself.

What damage is covered by loss of use coverage?

You can typically take advantage of loss of use coverage if your home is damaged and you're forced to live elsewhere due to one of the following perils:

• Fire and smoke

• Windstorms

• Water damage from burst pipe

• Explosions

• Falling objects

• Vandalism

• Weight of ice, snow, or sleet

• Volcanic eruption

What damage is NOT covered by loss of use coverage?

Loss of use coverage typically won't kick in if your home is damaged by any of the following causes:

• Maintenance issues

• Normal wear and tear

• Pest infestations

• Flooding

• Earthquakes

• Preventable damage

Loss of use coverage also doesn't cover mortgage payments, property taxes, electric bills, or any other ongoing expenses that you pay for your property.

How much loss of use coverage do I need?

Loss of use coverage is typically set at 20% of your home’s insured value, or your dwelling coverage limit, however coverage limits vary by company. [1]  

Let’s look at an example.

Say your home has $400,000 in dwelling coverage and your ALE limit is set at 20%, then your ALE coverage will be $80,000 maximum. That means if a tornado destroys your home and you need to live somewhere else, you’ll have $80,000 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. 

How to file a loss of use coverage 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: 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 for your previous month’s expenses. However, if you’re short on cash or your necessary expenses require a large sum of money, your insurer may provide you with a loss of use check up front. 

• 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.

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 based on your personal property limit, not your dwelling coverage limit.

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.

Does loss of use coverage have a deductible?

Loss of use coverage doesn’t typically require a separate deductible, however when you file a claim for property damage, you do have to pay one.

Is additional living expenses the same thing as loss of use?

Yes, additional living expenses is simply another name for the loss of use coverage section of your home, condo, or renters insurance policies.