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HOME INSURANCE INSIGHTS

Loss of use coverage is typically included in a standard homeowners insurance policy. It's also sometimes called 'additional living expenses, (ALE) coverage.

does home insurance pay for temporaty housing after natural disasterIf your home is seriously damaged or destroyed due to a fire, storm or other covered peril, you'll need to live somewhere else while the property is being repaired or rebuilt. That means you'll have extra living expenses above and beyond the normal - such as the costs to temporarily rent or stay at a hotel, eat at restaurants and store your goods elsewhere. Fortunately, these out-of-pocket expenses are reimbursed to a large degree by loss of use coverage automatically provided by your homeowners insurance policy.

It's important to understand homeowners insurance loss of use coverage, limits and rules and to ask yourself: How much loss of use coverage do I need? Take the time to talk with your insurance agent so that you understand what is loss of use in home insurance and what minimum coverage amounts are recommended so you are sure to have sufficient coverage if you ever have to file a claim.

What is loss of use coverage?

Ask the experts and they can provide a loss of use coverage definition that's easy to comprehend.

"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 claim - such as fire or vandalism - your insurance company will provide reasonable accommodations and cover these related expenses until you can move back into your house, he adds.

Every homeowners insurance policy typically includes loss of use coverage unless you specifically request that it be excluded.

What is covered under loss of use insurance?

Covered costs include items above and beyond what you normally would pay for before your home was damaged. Hotel or rental bills, necessary restaurant meals and food charges, transportation costs and fees to store your possessions are among the likely covered additional living expenses.

"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," explains Joshua Scott, a Scottsdale, Arizona-based executive general adjuster with The Greenspan Co./Adjusters International.

On the other hand, if you never went to restaurants before the loss but were forced to do so while you were living in a hotel after the loss, the additional cost of restaurant dining could be claimed under your homeowners insurance policy.

What is not covered under loss of use insurance?

Your policy will not cover expenses you were already responsible for before the loss, such as loan payments, childcare bills and normal grocery charges.

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, if you live elsewhere temporarily because your home is uncomfortable, but there is no damage, your expenses won’t be covered. For instance, if you go to a hotel because your heat isn’t working due to a power outage, but there’s no structural damage to your home, you would not be covered.

How much is loss of use insurance?

Additional living expense coverage is automatically included in your homeowners insurance for no extra charge unless otherwise specified.

This coverage is not broken out as a separate line item cost in your homeowners insurance policy or rate, so it's difficult to determine what percentage of your premium goes toward loss of use coverage.

"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?

How much additional living expense coverage you'll need will depend on many factors.

"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.

To determine how much coverage you may need, ask yourself: How long, if your home was 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," notes 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, Smith recommends.

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 bump up this protection, contact your insurance company.

How to file a loss of use insurance claim

A separate claim usually doesn't need to be submitted for loss of use. It's included as part of the original claim you would make if your home is damaged or destroyed.

"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," says Sawan.

Be prepared to complete a form breaking down your normal monthly living expenses. Also, be ready to submit receipts and invoices to your insurance company for all increased living expenses you pay while you are forced to live outside your home. Keep careful records and save vouchers for every transaction.

"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 property?

Loss of use coverage also applies to landlords and renters, too.

If you are a landlord whose rental home is damaged and cannot be inhabited, your insurance company 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," says Jones.

If you are a renter, you would need a separate renters policy for loss of use coverage to kick in; your landlord's policy would not provide coverage for you, the renter, according to Jones.

"When a tenant is insured under a renter's policy, the policy covers expenses to both move the tenant to a new location and to cover the additional rents the tenant must pay at a temporary location," says Scott.

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

You don't have to stay at a hotel or rent an apartment for loss of use coverage to apply.

"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 notes.

Frequently Asked Questions

Does loss of use come with a deductible?

Additional living expense coverage does not have its own separate deductible. Your policy requires you to first pay a deductible (often $500 to $1,000) that applies to the underlying cause of loss that triggered the additional living expenses.

"If your home burns down, the deductible you pay will apply to the fire loss and not to the loss of use coverage," explains Andy Jones with COUNTRY Financial.

Is loss of use insurance automatically included in homeowners insurance?

Yes - most insurance companies include this coverage automatically in a homeowners insurance policy for no additional charge beyond the premiums you pay. It's often listed on your policy under "Coverage D."

How does loss of use insurance work with additional living expense insurance?

Loss of use coverage is also called additional living expense (ALE) coverage. These are synonymous terms that mean the same thing.

"If you want more loss of use coverage, request an amendment to your Coverage D limits either by extending the coverage window after a loss, increasing the dollar value or increasing both," Scott recommends.