Loss of Use Coverage in Home Insurance: What to Know

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.

What is loss of use coverage?

Loss of use coverage may also be called additional living expenses coverage (ALE) or Coverage D within your homeowners insurance policy.

You need this type of coverage if your home becomes uninhabitable due to damage. 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.

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How does loss of use coverage work?

Your insurance company will typically only grant loss of use coverage if the damage to your home meets specifically outlined criteria. For example, your policy may cover damage due to a fire but not due to a flood. Additionally, the damage must be severe enough that you and your family can’t safely stay in your home.

Your homeowners insurance policy will outline its limit for loss of use coverage. It’s important to make sure that limit is sufficient to appropriately house you and your family if the unexpected occurs.

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 loss of use coverage pay for?

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

• Pet boarding costs if you have to board your pets while unable to live in your home

• 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

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

What’s excluded from loss of use coverage?

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

What factors 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:

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

2. 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.

3. 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.

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

5. 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.

Learn More: Why Do Home Insurance Companies Deny Claims?

Loss of use coverage FAQs