If your home gets severely damaged and your family is displaced, the cost of hotel stays can add up fast —but homeowners insurance can help foot the bill with loss of use coverage.
Loss of use coverage is part of a property insurance policy that gives you money to pay for expenses while you’re displaced for covered perils. In this article, we at the Guides Home Team will explain what loss of use coverage is, what it covers, typical coverage limits and how to file a claim.
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What is Loss of Use Coverage?
Loss of use coverage — sometimes called additional living expenses coverage (ALE) —reimburses you for living costs that exceed what you would normally spend if you can’t live in your home due to a covered loss.
Say a tree falls, putting a hole in the side of your house, and it’s not safe to live in without repairs. The cost of living elsewhere can get expensive when you consider your immediate needs. You would need a place to sleep, might be eating out at restaurants for an extended period and could have a farther commute to work depending on where you are staying.
Loss of use insurance would pay for your accommodations and any extra living costs until your home is fixed, as long as those costs stay within your policy’s coverage limits. Insurance companies typically outline this type of coverage in the Coverage D section of a renters or homeowners insurance policy. You can find this coverage and its limits on the declarations page of your policy, which is typically at the top of your policy documents.
What Does Loss of Use Cover?
Loss of use coverage pays for normal living expenses and provides two other protections — fair rental value coverage and prohibited use coverage.
- Fair rental value coverage: If you rent out part of your home and it is damaged, this coverage will help pay for lost rental income if a tenant has to relocate during repairs.
- Prohibited use coverage: Covers displacement costs if an emergency causes authorities to bar entry into your home. For example, if your home is in the path of a wildfire and local emergency management officials order a mandatory evacuation, your insurance may reimburse extra living costs incurred during that time. Standard policies often don’t provide loss of use coverage for voluntary evacuations.
Below are examples of expenses that an insurance provider may reimburse under loss of use coverage:
- Gas
- Grocery
- Hotel stays
- Laundry fees
- Pet boarding
- Public transportation
- Restaurant bills
- Storage of your belongings
Coverage Limits
Loss of use coverage limits vary by your insurance provider and policy. Here’s a rundown of typical coverage constraints:
- Homeowners insurance: Coverage is often 20% of your homeowners insurance. So if you have a policy with a $300,000 dwelling coverage limit, your loss of use coverage would cap at $60,000.
- Condo insurance: Coverage may be a percentage of your dwelling and personal property coverage.
- Renters insurance: Coverage may be a set amount that’s several thousand dollars (like $5,000, for example) or a percentage of your personal property coverage.
- Mobile home insurance: Coverage is typically a percentage of your dwelling coverage.
Excluded Expenses
Loss of use coverage won’t cover any and every cost —you’ll need to read your policy’s fine print to understand the exclusions. For example, loss of use coverage won’t pay your rent or mortgage, so you’ll need to keep making payments to stay current with your landlord or lender.
Loss of use coverage will only pay for expenses that result from perils covered by your property insurance policy. Homeowners insurance commonly excludes flood damage, for example, so a provider would not reimburse you for additional living costs due to flooding or water damage after a natural disaster. In particular, National Flood Insurance Program policies do not provide loss of use coverage, while some private flood insurers do.
Property insurance is designed to cover events or natural disasters outside of your control. So if you have to live elsewhere because of routine home maintenance, renovations or pest removal, you would not be reimbursed for living costs under loss of use coverage.
For events that are covered, only costs that exceed your regular living expenses are eligible for reimbursem*nt. Let’s say you usually spend $300 per month on gas for your commute to work, and that increases to $400 per month while your family is displaced and living in a hotel or another temporary residence. You would only be reimbursed for the extra $100 spent.
Finally, insurance only covers costs to meet an average standard of living, which excludes luxury accommodations. Before you book a high-end hotel or rental for temporary housing, consider that insurance companies could decline to pay for expenses they deem unnecessary. And if you surpass your policy’s limit, you’ll have to start paying out of pocket. Additionally, many insurers use third-party vendors to book policyholders at local hotels at negotiated rates. This even includes direct billing to the insurer. Check with your carrier or agent for more details.
How To Get Reimbursed
Getting reimbursed for additional living expenses starts with you filing an insurance claim. Depending on your provider, you can file a claim online, with a mobile app or by calling the claims line and speaking to an insurance agent or company representative. In some cases, you might be able to get an advance for expenses to ease your financial burden, while in other cases, you’ll need to spend the money out of pocket first and get repaid later.
Keep Receipts
Records are essential when filing claims for living expenses, especially since your insurance company will likely ask you to provide receipts to show proof of purchases. Keep your receipts somewhere safe and take notes of what you’re using each expenditure for.
Perhaps you need a storage unit to store your dining room set after a kitchen fire. Come up with a way to log those expenses and put the receipts in a digital or physical folder with an explanation justifying the purchase.
Determine Your Normal Standard of Living
Determine your typical monthly budget before getting displaced, and then write out how much you’re spending when you start living in temporary housing. This can help you keep track of your extra living expenses and provides a backup to show the claims representative your net loss so you can get properly reimbursed.
The Bottom Line
If you are displaced from your home, staying in a hotel and eating out for several weeks can cost several thousand dollars extra each month —which is no small sum. Taking advantage of your insurance policy’s loss of use coverage can help you limit out-of-pocket costs in the event of unexpected damage to your home.
If you’ve experienced a covered loss, review your policy’s coverage limits and reach out to your insurance company to find out how to file a claim.
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Frequently Asked Questions About Loss of Use Coverage
Loss of use coverage, or additional living expenses is included in standard home, condo and renters insurance policies. If you experience a qualifying event, such as a fire damaging your home and displacing your family, you can take advantage of loss of use coverage by filing a claim. Once your claim is submitted, you may receive reimbursem*nts on an ongoing basis for additional living expenses until you can return home.
Loss of use coverage is just one aspect of rental insurance. Besides the loss of use coverage, rental insurance provides personal property and personal liability coverage. If you have a renters policy, you can check your insurance declarations page to find your loss of use coverage limit.
Loss of use claims usually don’t require you to pay a deductible. Your insurance coverage summary page should include an outline of your policy’s deductibles.
By “actual loss sustained,” an insurance company means the total loss incurred from a covered event. Suppose lightning starts a fire that damages your home, and you can’t live there for a month. The actual loss might include the cost of repairs plus your additional living expenses while those repairs are being made.
When displaced, loss of use coverage only pays for living costs beyond what you normally spend, up to your policy’s coverage limit and within an average standard of living. For example, if your food costs and other living expenses typically total $2,000 per month, and that increases to $3,000 while you’re living in a hotel, your home insurance policy would reimburse the additional $1,000 — not the full $3,000. Be prepared to provide documentation to prove your daily living expenses have increased due to displacement from your home.
If you have feedback or questions about this article, please email the MarketWatch Guides team at [email protected].
