What is loss of use coverage?

What is loss of use coverage on homeowners insurance?

Loss of use, or ALE, is a type of home insurance coverage that pays the necessary increase in expenses needed to maintain your household’s normal standard of living during repairs or while you permanently relocate after a covered loss.

For example, coverage applies when a fire, windstorm, or another covered event causes enough damage that you must leave your home. It also applies in some situations where a civil authority restricts access because a covered peril has damaged nearby property.

"Loss of use coverage is typically included in a standard homeowners insurance policy. It's also sometimes called 'additional living expenses (ALE) coverage," says Jack Dowd, account executive with The Dowd Agencies in Holyoke, Massachusetts.

If your home is uninhabitable due to a covered loss - such as fire - your insurance company will provide reasonable accommodations and cover these related expenses until you can move back into your house.

What does loss of use insurance cover?

Loss of use insurance pays the additional costs you incur when you cannot live in your home after a covered loss. It helps you maintain a similar standard of living, not upgrade it. Your insurer may require receipts and may need to approve where you stay and the amount you spend.

Covered expenses include:

Expense	How coverage applies
Hotel or temporary rental	Pays reasonable temporary housing costs
Restaurant meals	Pays the increase above your normal food spending
Transportation	Pays added mileage, fuel, parking or public transit costs
Storage	Pays the necessary storage costs for covered belongings
Pet boarding	Pays when temporary housing cannot accommodate a pet
Laundry	Pays added laundromat or laundry-service costs
Utility setup	Pays reasonable connection or setup charges
Moving expenses	Pays necessary costs to enter temporary housing

"This coverage pays you back for increased living expenses you incur. But the keyword here is 'increased.' For example, if you typically ate out every meal before the loss, and then you continue to dine at restaurants for every meal after the loss, these dining charges wouldn't be covered because you spent at the same rate you did before the loss," says Joshua Scott, a Scottsdale, Arizona-based executive general adjuster with The Greenspan Co./Adjusters International.

On the other hand, the additional cost of restaurant dining could be claimed if you rarely went to restaurants before the loss but were forced to do so while living in a hotel during repairs.

What is not covered by loss of use insurance?

Loss of use does not cover every expense you incur after leaving your home. It excludes normal bills, unnecessary upgrades, and costs arising from damage not covered by the underlying policy. The insurer also will not reimburse expenses that you cannot document or that fall outside the approved restoration period.

Your policy will not cover expenses you were already responsible for before the loss, such as:

Loan payments, including your mortgage
Childcare bills
Normal grocery bills

Also, loss-of-use coverage does not apply when flood damage is involved. If you have flood insurance through the National Flood Insurance Program (NFIP), you're also out of luck -- it won't cover additional living expenses. However, if you have private flood insurance, it is typically included.

Finally, loss of use doesn't cover anything unrelated to a covered claim. For instance, if you go to a hotel because your heat isn’t working due to a power outage, you will not be covered. The coverage only applies when your house is being repaired due to a covered loss.

How much is loss of use coverage?

Loss of use is included in the full homeowners insurance premium and does not have a separate price, but generally costs 10 to 20% of your premium. Raising the limit will increase the premium, but the change depends on the insurer and policy.

"Typically, it accounts for 10% to 20% of your premium," says Kimesha Smith, attorney and director of client relations for Miami-headquartered Insurance Litigation Group.

How much loss of use coverage do I need?

Choose enough loss of use coverage to pay the increased living costs your household could face during a long repair or rebuild. Insurers often calculate Coverage D as a percentage of dwelling coverage, but the percentage differs. Common limits range from 10% to 30% of Coverage A.

"In general, the standard loss of use coverage in a homeowners policy is tied to the total amount of dwelling coverage. I often see loss of use coverage in an amount equal to 20 to 30% of the total dwelling coverage," Dennis Sawan, a Toledo-based insurance litigation attorney, says.

Say your home is valued by your insurance company at $300,000. That means your insurer may automatically provide up to $90,000 in loss of use coverage (30% of your total dwelling coverage) for the year.

For a home with $300,000 in dwelling coverage:

A 10% Coverage D limit provides $30,000.
A 20% limit provides $60,000.
A 30% limit provides $90,000.

To calculate loss of use for home insurance, ask yourself: How long, if your home were destroyed, would it take to rebuild that property?

"Everyone's insurance needs are different. Consider whether the automatic amount is enough to cover any necessary increases in your living expenses if your residence was to become uninhabitable while the damage was being repaired," says Andy Jones, national property product supervisor for COUNTRY Financial in Bloomington, Illinois. "For instance, a one-person household will not need to rent as large of a home as an eight-person household if they were displaced due to a covered loss."

To be safe, your loss of use coverage should probably cover up to 12 months of basic, comparable living expenses.

Fortunately, you can request an increase in additional living expense coverage, which may slightly increase your premium. To best determine how much loss-of-use coverage you need and what it will cost to increase this protection, contact your insurance company.

How to file a loss of use insurance claim

Report the property damage as soon as your home becomes uninhabitable. Before signing a lease or committing to long-term housing, confirm your Coverage D limit and ask the insurer to approve your temporary accommodations. An adjuster will review the damage and explain which expenses qualify.

"Once a claim is determined to have resulted from a covered loss, your insurer will begin to make accommodations with you for loss of use payments, including working with you to determine an alternate living arrangement that can meet your satisfaction," Sawan says.

Follow these steps:

Report the property damage. Explain why the home is unsafe or uninhabitable.
Ask about your Coverage D limit. Confirm all dollar and time restrictions.
Discuss temporary housing. Get approval before signing a lease when possible.
Document normal expenses. Provide records of your usual grocery, utility, and transportation costs.
Keep every receipt. Record the date, amount, and reason for each additional expense.
Submit expenses regularly. Do not wait until the repairs are complete.
Track the repair schedule. Ask how delays could affect the coverage period.
Request an advance when needed. Some insurers will provide money in advance for some covered expenses.

"You should submit these receipts and invoices as they accrue so that you can be reimbursed over time as long as needed and up to 12 months," Smith says.

How does loss of use coverage work with rental properties?

Loss of use protection works differently for landlords and tenants. A landlord policy pays the property’s fair rental value when covered damage forces tenants to leave. A renters policy pays the tenant’s increased living expenses. Payments are subject to the applicable policy limit and restoration period.

If you are a landlord whose rental home is damaged and uninhabitable, landlord insurance covers the rent your tenant would otherwise pay. "This coverage is also called 'fair rental value.' It covers landlords for lost rent while the residence is being repaired, with 10 percent of the dwelling coverage limit applied automatically," Jones says.
If you are a renter, you can file a claim for renters insurance loss of use coverage. "When a tenant is insured under a renters policy, the policy covers expenses to both move the tenant to a new location and to cover the additional rent the tenant must pay at a temporary location," says Scott.

How does loss of use reimbursement when staying with a friend or relative work?

Loss-of-use reimbursement applies while staying with a friend or relative. However, the insurer pays actual and reasonable additional expenses. Discuss the arrangement with your adjuster and keep written records of every payment.

This allows you to help pay the bills when you're staying at someone else's home.

"You are entitled to reimbursement regardless of your choice of temporary accommodations. If you choose to live with a friend or relative and pay them for lodging, food, or other covered needs, your insurance policy will cover the expense as long as it is a reasonable charge," Jones says.

FAQ: Loss of use coverage

Does loss of use insurance have a deductible?

No, additional living expense coverage does not have a separate deductible. Your policy requires you to pay a deductible (often $500 to $1,000) for the underlying cause of loss that triggered the additional living expenses.

Is loss of use covered by homeowners insurance?

Yes. Standard homeowners policies include loss of use as Coverage D. It pays additional living expenses when covered damage makes your home uninhabitable. Coverage is subject to a dollar limit and, in some policies, a time limit shown on the declarations page.

Is loss of use insurance the same as additional living expense insurance?

Yes. Loss of use coverage and additional living expense (ALE) coverage are two terms for the same coverage and are generally interchangeable.

Is loss of use the same as rent loss coverage?

No. ALE covers a resident’s additional living expenses. Fair rental value or loss-of-rent coverage replaces a landlord’s lost rental income after covered damage. Both fall under loss of use coverage, but they protect against different financial losses.