Loss of use coverage is one of the standard protections in a homeowners insurance policy, often referred to as Coverage D or additional living expenses. Additional living expenses (ALE) coverage is part of loss of use, and the two terms are often used interchangeably, although they’re not exactly the same. Understanding the breadth of coverage your homeowners insurance provides can come in handy in an emergency and also give you peace of mind, so here’s everything you need to know about loss of use:
- How does loss of use coverage work?
- Additional living expenses and the other components
- Filing a loss of use claim
How does loss of use coverage work?
Loss of use is defined under the Coverage D section of an HO-3 homeowners insurance policy. It can help pay the additional costs you may face if your home becomes temporarily unlivable and is repaired or rebuilt after a covered loss. For example, say a house fire severely damages your home and you must stay in a hotel for a month while it is fixed. Loss of use coverage can step in to pay the hotel fees.
Loss of use only covers an increase in living expenses, not all your expenses — it is designed as a temporary solution to maintain your normal standard of living for the shortest amount of time possible. The coverage only pays the difference between your temporarily increased cost of living and your normal cost of living. For example, if you normally spend $1,000 a month on housing, but you spend an additional $2,000 on a hotel in a month that you can't remain in your home, loss of use coverage can pay the $2,000 difference.
Loss of use coverage reimburses you up to a predetermined amount, which is normally defined as a percentage of your dwelling coverage (the insured value of your home). A typical loss of use coverage limit is 20% of your dwelling coverage, but we’ve seen it range from 10% to 30%. So if your home’s insured value or dwelling coverage is $200,000 and you have a loss of use coverage limit of 10%, your insurance company will pay up to $20,000 in loss of use reimbursement.
Your deductible usually doesn’t apply to loss of use, meaning you won’t have to pay out of pocket before your insurance kicks in. However, your deductible may be part of a claim for related damage. That means even though your deductible may not apply to loss of use coverage, you may have to pay it anyway to repair the damage that initially caused you to have to leave your home or lose rental income.
The components of loss of use coverage
The loss of use section in a standard HO-3 homeowners insurance policy includes three types of coverage: additional living expenses, fair rental value and civil authority prohibits use. So while additional living expenses (ALE) and loss of use coverage are sometimes thought of as the same thing, additional living expenses is actually one of three parts of loss of use coverage.
Additional living expenses
Maybe the best-known and applicable part of loss of use coverage, additional living expenses covers extra costs you find yourself stuck with while you are unable to stay in your home after an incident. Here are a few common costs additional living expenses can cover:
- Temporary housing – hotel or rental home.
- Boarding expenses for your pet.
- Increased transportation costs, including mileage, fuel and public transit.
- Cost of a storage unit.
- Utility usage, such as water, gas or electricity.
For example, say your family must spend one week in a hotel after a house fire, meaning you have a longer drive to work and have to eat out more frequently. Additional living expenses cover can cover the cost of your hotel room, the extra fuel for your car and your restaurant bills.
Additional living expenses only covers the extra costs while you are out of your home. This means that if you normally spend $50 a week on transportation, but spend $150 in a week you can't be in your home, you could see a $100 reimbursement through ALE.
Fair rental value
Fair rental value is a lesser-known protection in loss of use coverage. If you rent out part of your home and your tenant must temporarily vacate the premises after a loss, fair rental value can reimburse you for lost rental income. Your homeowners insurance loss of use does not cover your tenant’s expenses, however. For your tenant to have coverage, they would have to have their own insurance policy with loss of use coverage, such as renters insurance.
The fair rental value may or may not be the amount of rent you collect. It depends on a handful of variables like whether the rental dwelling came furnished or unfurnished and if utilities are included in the rent. For instance, if your tenant's electricity bill is included in their rent, your insurance company probably won't reimburse you for the full rent amount because the renter wasn't using as much electricity while they couldn't stay in their home.
Civil authority prohibits use
On rare occasions, a civil authority or government may intervene and prevent people from travelling to a certain area. For example, if there is a wildfire in your immediate neighborhood that is threatening your home, your local governmental authority may prohibit people from remaining in their homes and evaluate them. Or, if the government closes a road after a hurricane which you need to get to your house, loss of use coverage can come in handy.
The disaster that causes government intervention must be covered in your homeowners insurance policy. For instance, if your policy covers wildfires, loss of use can cover mandated evacuations. However, homeowners insurance almost never covers flooding, so if a government authority closes a road due to flooding and you cannot get home, your insurance policy most likely won’t kick in. Additionally, you are typically only covered for up to two weeks under this part of your policy.
How to file a loss of use claim
As soon as possible after a loss and when you know you cannot stay in your home, you should let your insurance company know that you will be filing a claim. Then, it is critical to save all receipts and records while you are out of your home so your insurance company can determine what your expenses were.
You’ll typically have to front all the money, and then you’ll receive a reimbursement check once the claim is submitted and approved. You should also keep documentation of your normal cost of living so you can prove to your homeowners insurance company that you had an increase in expenses. If you have to spend an extended period of time out of your home, you may receive a claim check every month.
Insurance companies' claims processes may vary. Some let you file claims online or through a mobile app, and some may require you to contact an agent by email or phone. Regardless of the method of filing a claim, you’ll need to detail your normal living expenses and the additional costs you incurred.
Frequently asked questions
Q: What is loss of use coverage?
A: Loss of use is a protection in standard homeowners insurance policies which can cover your additional living expenses if you are temporarily unable to remain in your home. For example, it can cover hotel fees and increased transportation costs.
Q: Does my deductible apply to loss of use?
A: No, deductibles usually don't apply to loss of use coverage. However, you may have to pay your deductible in repairing the damage that made your home temporarily unlivable.
Q: How much is loss of use coverage?
A: Loss of use coverage is included in a standard homeowners insurance policy, so it depends on how much your home insurance premium is. The loss of use coverage limit is typically 20% of your dwelling coverage, but can vary slightly.
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