If damage to your home is covered by your policy, and you must leave it while it’s being repaired, where would you stay? Would the cost of a hotel or temporary apartment fit into your budget? Having loss of use coverage included in your homeowners insurance policy can help. If your home is damaged by a covered loss, loss of use coverage can help pay for your additional housing and living expenses while your home is being repaired or rebuilt.
What Is Loss of Use Coverage in Homeowners Insurance?
Loss of use coverage, also known as additional living expenses (ALE) insurance, or Coverage D, can help pay for the additional costs you might incur for reasonable housing and living expenses if a covered event makes your house temporarily uninhabitable while it’s being repaired or rebuilt.
What Is Additional Living Expenses (ALE) Insurance?
ALE insurance reimburses homeowners for additional living expenses stemming from temporary relocation after a covered loss. For example, if your house is severely damaged by a fire, your loss of use coverage would reimburse you for the cost of a hotel up to your coverage limit.
Many homeowners insurance companies include loss of use coverage in their policies and place a limit as a percentage of your dwelling coverage. For instance, if your limit is 30% and your dwelling coverage limit is $200,000, you would be covered for up to $60,000 under your loss of use coverage. Policy limits vary by insurance company and by policy, so if you have questions regarding your specific loss of use coverage limit, contact your insurance representative. Typically, you can increase your coverage limit for an additional cost.
Loss of use coverage only applies to damage caused to your home by covered perils. For instance, if your home is flooded and you don’t have flood insurance, your loss of use claim would not be covered as a result of this type of loss.
What Does Loss of Use Protection Cover?
As previously mentioned, loss of use insurance typically provides coverage for additional living expenses resulting from a covered loss. In simpler terms, this means you would be covered for expenses you wouldn’t ordinarily have if you were living in your own home. For example, let’s assume you typically spend $100 on gas per month, but that amount has increased to $150 because you live in a hotel that is farther from work while your home is repaired. In this scenario, you would be reimbursed $50, which is the incremental cost. A list of common additional living expenses that are typically covered under loss of use insurance is provided below.
- Cost of temporary housing, such as a hotel or a motel.
- Taking public transportation.
- Boarding a pet.
- Additional food expenses.
If you’re renting your home or part of your home, and it becomes unlivable due to a covered loss, Travelers would pay the fair rental value for the rental income you’re missing out on. Keep in mind that your insurance company won’t cover expenses that are not incurred during this period, such as utilities.
What Is Not Covered by Loss of Use Protection?
Loss of use protection does not cover expenses that you were already responsible for before the loss. You will still be responsible for paying your mortgage, insurance, child care expenses and so on. The important thing to remember is that loss of use protection is for additional expenses you become responsible for because you can’t live in your home.
For example, if your family normally spends around $200 a week for food, but now you are staying in a hotel without a kitchen, you may need to eat out for most of your meals. Eating out is costing you $300 a week. Under loss of use coverage, the $100 additional expense per week would be covered.
Do I Have to Pay a Deductible on Loss of Use Insurance?
You may be responsible for a deductible for other parts of your claim. Your homeowners insurance representative can explain your deductible further and help you explore other coverages you may want to add to your homeowners policy. The goal is to make sure you have coverage that fits your needs.
How Much Loss of Use Coverage Do I Need?
Everyone’s insurance needs are different. Loss of use coverage is typically based on your dwelling coverage and calculated at about 20% to 30% of the dwelling coverage limit. Consider whether this is enough to cover any necessary increases in your living expenses if your residence is not habitable while damage is being repaired or replaced.
Consult your insurance agent about your individual policy to understand the amount of loss of use coverage you have; this is subject to coverage terms and limits.