What Is Loss of Use Coverage in Homeowners Insurance?

Loss of use coverage provides for you to live somewhere else in the event your home is unlivable. But there are other things you should know about this coverage.

Catherine Collins
Catherine Collins

Catherine leverages her background in education and finance to write articles that help readers make informed decisions about their insurance and finances.

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Chris Schafer
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Chris Schafer
Chris SchaferSenior Editor
  • 15+ years in content creation

  • 7+ years in business and financial services content

Chris is a seasoned writer/editor with past experience across myriad industries, including insurance, SAS, finance, Medicare, logistics, marketing/advertising, and many more.

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Updated July 17, 2024

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Loss of use coverage is an important component of your homeowners insurance policy. This coverage enables you to live somewhere temporarily and pay for certain expenses if your home is unexpectedly destroyed or damaged to the point of being uninhabitable.

Loss of use coverage is also known as additional living expenses (ALE) coverage or Coverage D, and like other coverages, it has some limits you should be aware of when considering this insurance.

What is loss of use coverage?

Loss of use coverage typically pays for hotel stays, restaurant meals, and other necessary expenses you incur while you’re unable to live in your home. In most cases, your insurance company will begin paying once it determines your home is unlivable.

Most insurance policies include loss of use coverage.

It’s important to note, though, that your loss of use coverage will only provide support if your insurer deems your home unlivable due to a covered peril. For example, if your home sustains water damage from a sudden pipe burst or a lightning strike, your loss of use coverage will cover your expenses. But this coverage won’t provide support if you need to leave your home because of an event your insurer doesn’t cover, such as flooding or an earthquake.

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How loss of use coverage works

Your insurer will grant a claim under loss of use coverage only if the damage to your home meets specifically outlined criteria. The criteria of what your insurer’s loss of use coverage does and doesn’t cover will be outlined in your policy.

Your policy will also outline the limits of your loss of use coverage. In most cases, these limits equate to a percentage of your dwelling coverage limit, like 20%, for example. In this case, if your dwelling coverage limit was $300,000, your loss of use coverage limit would be $60,000.

If you rent or own a condo, such losses could also fall under the personal property limit of your insurance policy instead of loss of use coverage.

Learn More: What Does Home Insurance Cover and What Does It Exclude?

Learn More: What Does Home Insurance Cover and What Does It Exclude?

Types of loss of use coverage

Three main types of loss of use coverage are available: additional living expenses, actual loss sustained, and fair rental value coverage.

  • Additional living expenses: This type of coverage can pay for several different services that you might need if you can’t live in your home. For example, it might cover hotel costs, food, laundry services, dog boarding, and more.

  • Actual loss sustained: Your insurance company might not compensate you for every single purchase you make while your home is uninhabitable. For example, your insurer may only compensate you for the amount you typically spend on groceries and not fund any spending beyond that figure.

  • Fair rental value coverage: If you have a rental property that’s damaged, this type of coverage will compensate you for the loss of income if your renters have to live elsewhere for a period of time.

What does ALE insurance cover?

Loss of use coverage typically pays for the following living expenses up to a certain amount listed in your policy:

  • Living expenses, such as a hotel or a rental, that you have to live in while your home is uninhabitable

  • Food costs so you can purchase meals while you’re away from home

  • Transportation costs that cover travel to wherever you have to relocate temporarily

What does loss of use coverage exclude?

It’s important to know what your insurance policy will and won’t cover when it comes to unexpected repairs, especially because some policies only pay for loss of use coverage under certain conditions.

Some policies might not pay for loss of use coverage in the event of a tropical storm or flooding. Additionally, time limits and financial limits are often part of your policy. Your insurance company also won’t pay for expenses you were already responsible for, like day care and your regular food costs.

Check Out: How to Find Out If You Live in a Flood Zone

Check Out: How to Find Out If You Live in a Flood Zone

Factors that affect loss of use coverage

Many different factors affect the price of your overall home insurance policy, including your policy limits, your deductible, and your home’s location. The type of damage you sustain and what your policy covers specifically affect your loss of use coverage, and the rental costs in the area will also affect your replacement cost estimates.

Here are a few key points to know about your policy as a whole:

  • Your policy limit is the most amount of money your insurance company will pay when you make a claim.

  • Your deductible is the amount of money you have to pay out of pocket before your insurance company starts paying for repairs.

  • The location of your home matters because some homes are in areas affected by natural disasters or crime. This influences the price of your policy.

  • The type of damage your home sustains is relevant, as some home insurance policies only apply to certain types of perils.

  • Rental costs in the area might affect your loss of use coverage, depending on how expensive homes are to rent.

How much loss of use coverage do you need?

Follow these steps to determine how much loss of use coverage you actually need:

  • illustration card https://a.storyblok.com/f/162273/150x150/79b027a857/house-rental-96x96-yellow_050-budget.svg

    Calculate your living expenses

    Add up your mortgage, utilities, food, and anything else you categorize as living expenses.

  • illustration card https://a.storyblok.com/f/162273/150x150/b045612c49/house-rental-96x96-orange_045-value.svg

    Know your policy limits

    Most policies include loss of use coverage, but the amount of coverage may vary. Make sure the limit you choose can adequately cover your living expenses should you need to use it.

  • illustration card https://a.storyblok.com/f/162273/100x100/4ec24627d2/flood-coverage.svg

    Evaluate your risk factors

    If you live in a city with a higher crime rate or you’re on the coast, with a higher chance of hurricanes, make sure your policy and any additional riders cover you for all types of potential hazards.

  • illustration card https://a.storyblok.com/f/162273/x/fa11c1fe75/comparison-website.svg

    Compare quotes

    Compare at least three different homeowners insurance quotes, paying close attention to policy limits to ensure they adequately cover your lifestyle.

  • illustration card https://a.storyblok.com/f/162273/x/5285c4cd74/uninsured-or-underinsured-motorist-coverage.svg

    Choose a policy that works for you

    After researching and comparing policies, choose the best fit for your budget and needs.

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How to file a loss of use claim

If you need to file a loss of use claim, follow these steps:

  1. Contact your insurer as soon as possible after your home is damaged or destroyed. Keep all records of your calls with the insurance company to stay organized.

  2. Document your losses in detail. Write down personal items you’ve lost and out-of-pocket expenses you’ve paid for, including rental cars, food, and hotel room stays.

  3. File a claim with your insurance company online, on the app, over the phone, or in person at the office.

  4. Work with an adjuster as they assess your claim, view the damage, and potentially ask you for more documentation, if necessary. Your adjuster and your insurance company will inform you of next steps, including when you’ll be compensated if your claim is approved.

Loss of use coverage FAQs

If you want to know more about loss of use coverage, consider this additional information as you search for a policy.

  • What is a covered loss in insurance?

    A covered loss in insurance is a financial loss that you sustain that your insurance company will reimburse you for. Your policy will outline which losses your insurer will cover.

  • What is Coverage D on an HO-3 policy?

    Coverage D outlines your HO-3 policy’s loss of use coverage. This coverage kicks in to cover your living expenses if your home is deemed uninhabitable because of a covered peril.

  • Does loss of use coverage have a deductible?

    The amount of coverage you receive and whether you have a deductible for loss of use depend on your specific insurer and policy.

  • What are standard home insurance limits for loss of use coverage?

    The amount of coverage typically ranges from 10%–30% of your dwelling coverage limit, depending on the insurer.

  • Does renters insurance cover loss of use?

    Renters insurance is designed to cover your personal belongings, liability, and additional living expenses if you’re unable to live in your rental due to a covered loss. This means that renters insurance can provide loss of use coverage in the event of a covered peril, such as a fire or vehicle damage.

  • What is fair rental value coverage?

    Fair rental value coverage is a type of coverage included in most landlord and homeowners insurance policies. It provides coverage for loss of rental income when a covered event leaves your rental property uninhabitable and your tenants have to relocate temporarily.

Catherine Collins
Catherine Collins

Catherine Collins is a freelance financial writer and author based in Detroit. She's the co-founder of MillennialHomeowner.com and MomsGotMoney.com, and author of the book Mom’s Got Money: A millennial mom’s guide to managing money like a boss. She has written for US News, Huffington Post, Money, Business Insider, Investopedia, Entrepreneur, Go Banking Rates, and many other publications. She currently resides in Detroit, Michigan with her boy-girl twins and a rescue dog named Julep.

Chris Schafer
Edited byChris SchaferSenior Editor
Chris Schafer
Chris SchaferSenior Editor
  • 15+ years in content creation

  • 7+ years in business and financial services content

Chris is a seasoned writer/editor with past experience across myriad industries, including insurance, SAS, finance, Medicare, logistics, marketing/advertising, and many more.

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