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. Your insurance policy may also cover your living expenses if your home is damaged by covered hazards and you’re forced to live somewhere else in the meantime.
Also known as loss-of-use coverage or additional living expenses (ALE) or Coverage D in your home insurance policy, this 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 or rebuilt. 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 may also be covered.
If you anticipate that you’ll be gone for an extended period of time, you’ll want to hold onto receipts for covered expenses while on the road. You’ll need those when you submit a loss-of-use claim to reimburse you for the unexpected turn of events.
Read on to learn more:
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 rebuilt. 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”.
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.
Check out our helpful coverage guide to see what perils you may or may not be protected against.
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.
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.
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 made 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’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 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.