How Does Loss of Use Coverage Work for Home Insurance?
Home insurance provides property and personal property protection against fire, theft, vandalism, and natural disasters. Let’s say a wildfire burns your home, and there’s enough property damage that your home must be partially or entirely rebuilt. Now you have to live somewhere else for a while. Loss of use coverage, known as additional living expenses (ALE) coverage, is baked into a standard policy. Loss of use insurance pays for the extra expenses that pop up every day. And if you rent out your home, a loss of use policy covers your rental property. It will help you recoup lost rental income in case your tenants must live somewhere else. Additionally, if your tenants have nowhere to go, they may also be covered.
Insurance companies can’t magically guess how much you’ll need for covered expenses. But there are steps you can take to recover your monetary losses. Keep receipts and note any additional living expenses. You will have to submit these records to be reimbursed for your loss of use claim.
Dwelling coverage is tricky to pick apart. Without looking at your policy, you may not know your coverage limits. Insurers usually set coverage limits at around 20 to 30 percent of your home’s insured value. This is also known as the “dwelling amount.” Let’s say your home’s insured value is $500,000. Your loss of use coverage limit will be anywhere from $100,000 to $150,000. Your normal living expenses may go up due to being forced to stay somewhere else and eat takeout or similar reasons. And if you go over your loss of use coverage limit, your insurance carrier will probably tell you to pay the extra money out of pocket. The reason is that homeowners insurance policies are calculated for additional living expenses coverage. Insurance companies predetermine these expenses. Insurance companies know that your normal living expenses will go up in the event of having to temporarily relocate. Should your additional living expenses continue to increase over time, your insurance carrier will notice. Some insurers now offer unlimited loss of use coverage, which would avoid this problem.
Either way, it’s essential to talk to your insurance agent when purchasing home insurance. Your agent will make sure everything is covered correctly. If you already have a home insurance policy, you can look at the declaration page under “Coverage D.” There, you will see your loss of use coverage limits.
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