Loss of use coverage helps cover additional costs that can arise if you need to relocate while damages to your home are repaired. It also helps cover lost rental income and costs arising from government-mandated evacuation. Also known as Coverage D, additional living expenses, ALE and LOU, loss of use is a standard offering in a home insurance policy. While it doesn't cover all your costs, it helps reduce significant financial strain.
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How does loss of use coverage work?
Loss of use is the Coverage D portion of your home insurance policy that covers the additional expenses that arise from having to relocate during repairs to your home if it's damaged by a covered peril.
The dollar amount of LOU you have available is predetermined when you buy your home insurance policy. It is usually a percentage of your dwelling coverage limit, between 10% and 30% of your dwelling coverage. This means that if the insured value of your home's dwelling coverage is $300,000 and you have a LOU limit of 10%, your insurer will pay up to $30,000 in LOU if you file a claim.
Luckily, your policy deductible isn't applied to loss of use. However, the deductible will still apply to the parts of your claim dealing with any covered damage that needs to be repaired.
The moving parts of loss of use coverage
Loss of use coverage in a standard HO-3 home insurance policy can be broken down into three sections: Additional living expenses, fair rent value and civil authority coverage.
Additional living expenses
Additional living expenses (ALE) is the most known part of loss of use coverage – to the point that the terms ALE and LOU are considered interchangeable, even if additional living expenses is part of the overall LOU coverage. This part of your loss of use coverage focuses on the extra costs that arise from having to live somewhere else temporarily while your home is repaired or rebuilt. ALE is commonly used to cover costs such as:
- Commute costs
- Pet boarding
It is important to understand that LOU covers the extra cost, not the full cost. For example, if your commute costs $60 a month and it goes up to $80 while you're relocated, LOU covers the $20 difference.
Fair rental value
If you rent part of your home to a tenant and they need to relocate due to repairs on your home after a covered peril, the fair rental value portion of LOU can reimburse you for lost rental income. The payout for fair rental value may not be equal to the monthly rent you collect.
There are some variables that come into play when calculating your fair rental value payout. For example, if your tenant's utility usage is included in the monthly rent, it's likely that your provider won't reimburse you the utility cost amount simply because the tenant wasn't in the house to use them.
It's also important to know that your additional living expenses coverage does not extend to your tenant's expenses. They would have to have their own loss of use coverage through renters insurance.
Civil authority coverage
In some circumstances, civil authority or government mandate may prohibit people from traveling to certain areas due to wildfire or similar hazards. If your home is too dangerous to go to due to a fire, or roads are shut down to a hurricane, your loss of use coverage can help with associated costs.
Keep in mind that civil authority coverage excludes flooding. If the government has roads closed due to a flood, your loss of use coverage will not go into effect. Furthermore, the time limit for civil authority coverage tends to be quite short, often around two weeks.
How do I file a loss of use claim?
As soon as you know you're going to have to relocate while your home is repaired due to a covered peril, contact your home insurance company and let them know you're filing a claim.
During the relocation, you will want to save all receipts and documents associated with it. Your provider will need these in order to effectively calculate your payout. Usually, you will have to pay your expenses up front, then your insurer will write you a check based on the difference between your normal expenses and your expenses while relocated.
The process of filing a claim can vary from provider to provider. Some insurers offer online and mobile app filing processes, while others want you to call an agent to file a claim. They will also require you to detail your regular monthly living expenses.
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