Loss of use coverage can pay for hotel stays, meals, and other essential expenses if your home becomes temporarily uninhabitable because of a covered peril.
For example, if a fire causes so much damage that your home is unfit to live in due to health or safety issues, loss of use coverage would help cover the cost of living at a motel or hotel while it is being repaired. Lack of necessities like running water, heat, electricity, and sanitary facilities can also trigger your loss of use coverage.
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When Your Home Isn’t Safe, Loss of Use Steps In
Though many people never consider what they would do if their home became unlivable, it is something all homeowners should consider. For example, there were an estimated 34,200 residential fires per year caused by heating alone from 2017-2019, resulting in an average $367 million in property loss.
Dwelling insurance would cover repairs to the structure of your home in the event of a catastrophe, but loss of use coverage protects against the other expenses that come from being unable to live at home. Depending on how long the repairs or rebuilds take, expenses like rental costs could add up. Loss of use coverage in a homeowners insurance policy helps to offset the potential costs of your temporary lodging and other additional expenses should your home become uninhabitable.
How Does Loss of Use Coverage Work?
Loss of use coverage, also called additional living expenses coverage (ALE) or Coverage D, typically works on a reimbursement basis and follows this process:
- Your home is hit with a covered peril, resulting in severe damage. For example, a tree may have fallen onto your roof, causing it to collapse.
- The damage is determined to have made your home uninhabitable. Following the previous example, the missing roof means the home is no longer weather-proof, which compromises your safety.
- You temporarily move your family to a motel while your roof is repaired. This means you have new expenses, such as the motel fees, laundry facility fees, and parking fees to keep your car on the motel lot.
- You file a claim with your home insurance company for loss of use coverage to help cover these new expenses. For loss of use coverage, there is no deductible to meet before your coverage kicks in. Follow the insurer’s claims process to file receipts and calculate the total.
- You receive a check to reimburse you for the covered amount. You may use that check as you see fit, but it should cover the extra expenses you had to pay while living away from home.
This coverage works the same for home owners, condo owners, and renters. As noted above, you usually need to pay for your expenses first and your insurance company will pay you back. Unlike most other home insurance coverages, there is no deductible to meet before your loss of use coverage is triggered. As such, it’s important to log your expenses and save your receipts to get the appropriate reimbursement.
How Loss of Use Works For Landlords
For landlords, loss of use coverage is also sometimes called fair rental value coverage. This comes in when your tenants cannot live in your rental property due to severe damage from a covered peril, such as if a fire destroys the apartment or home.
In this case, your loss of use coverage would reimburse you for loss of rental income while the property is being repaired. For example, if your rental property’s repairs takes two months, then your loss of use coverage would reimburse you for two months of lost rent. This coverage typically lasts until the property is repaired or up to 12 months.
When Is a Home Considered Uninhabitable?
Loss of use claims can help you pay for reasonable essential expenses if your home becomes temporarily uninhabitable. “Uninhabitable” is typically defined as being unfit to live in due to:
- Health or safety issues
- Lack of running water
- Lack of heat
- Lack of electricity
- Lack of sanitary facilities
- Severe structural damage, such as a collapsed roof
However, this coverage only extends to cases where your home was damaged due to a covered peril. This means it will not kick in if your home was made uninhabitable due to a personal home renovation project gone wrong, or due to an excluded peril like flooding.
What Does Loss of Use Pay For?
When your home becomes uninhabitable, loss of use coverage is designed to reimburse you for any expenses you incur that are above and beyond your normal living expenses. It covers the additional costs that are required for you to maintain your standard of living while your home is being repaired or rebuilt. These commonly include:
- The cost of temporary housing, such as residing in a hotel, motel, apartment, or another rental living arrangement
- Storage costs if your car or belongings must be stored elsewhere while your home is being repaired
- Fuel expenses if the move extends your work commute
- Laundry expenses if you don’t have access to a washer and dryer
- Costs associated with moving your items to storage
- Parking fees if required by your temporary residence
- Pet boarding fees if necessary while you’re away from your home
- Costs for meals beyond your normal spending, such as restaurant bills if you must dine out instead of cooking at home
Having to unexpectedly leave your home and find other accommodations can be very stressful, but knowing you have coverage to help with the costs may help alleviate some of the burdens.
What Are the Limitations of Loss of Use Coverage?
Loss of use has restrictions and limits when it comes to:
- Damages eligible for coverage: Not every situation will trigger loss of use eligibility
- Costs covered: You may not be reimbursed for 100% of every claim
- Total amount covered: Your coverage will only extend to your policy limits
Limits on Damages Eligible for Coverage
Loss of use coverage excludes situations where your home is made unlivable due to damage from an excluded peril. For example, you would not be eligible for loss of use coverage if you have to relocate because your home was damaged by:
- Negligence or lack of maintenance
- Mold, rot, or rust
- Voluntary renovation projects
- General maintenance projects
A good rule of thumb is that if your dwelling insurance would not cover the damages, neither will your loss of use coverage.
Limits on Costs Covered
Even if the cause is covered, loss of use reimbursement does not reimburse for everything; it only reimburses you for extra expenses incurred from the loss of use of your home. For example, if you typically spend $150 a week on groceries and you spent $200 eating out while you stayed in a hotel, your coverage would likely only reimburse you for the extra $50 and not $200.
This coverage also does not include expenses you were already responsible for before the loss, such as your property taxes, mortgage payment, and home insurance payments.
Limit on Total Amount Covered
Your loss of use coverage will only reimburse you for eligible claims up to your policy’s limit. For example, if your loss of use coverage is $3,000 and you file $3,800 of claims, your loss of use would only reimburse you up to $3,000.
How Much Loss of Use Coverage Do You Need?
Loss of Use Calculation
10% or 20% of dwelling coverage limit
Flat rate or percentage of personal property coverage
20% of total dwelling and personal property coverage
10% or 20% of dwelling coverage
Your loss of use coverage limit is typically based on what type of home insurance policy you have and your dwelling coverage amount. For example, many home insurance policies set loss of use coverage at 10%, 20%, or 30% of your dwelling coverage. This means if your dwelling coverage is $300,000, your loss of use would be between $30,000 to $90,000, depending on which percentage your policy uses.
In some cases, the coverage in your standard policy may not be enough. Some insurance companies allow policyholders to increase their loss of use coverage to meet their needs, though this will come with an increase in the policy premium.
However, you typically cannot reduce your premium by lowering the loss of use coverage from the standard default. If you’re concerned about your current coverage amount, contact your insurance agent or a company representative to discuss your options.
How Do You Get Loss of Use Coverage?
The good news is loss of use coverage is typically already included in your standard home insurance policy, including condo insurance and renter’s insurance. The cost for this coverage has already been factored into your premium, so there’s no need to worry about making a separate payment or setting up a separate coverage.
Landlords of rental properties should check with their insurer to verify if loss of use is included, and if not, how it may be added. Loss of use coverage can protect landlords from loss rental income if the tenant must vacate the property while it is being repaired from a covered peril.
How to File a Loss of Use Claim for Reimbursement
If you have to use your loss of use coverage, this is the typical process:
- Contact your insurance company to file a claim.
- Provide documentation to back up your claim.
- Wait for claim review.
- Receive a reimbursement check.
1. Contact your insurance company to file a claim.
In many cases, the insurance company will put you in contact with a representative to help you file your claim. As coverage depends on policy terms, make sure to ask your representative about what documentation they require and make a checklist of each step.
2. Provide documentation to back up your claim.
Depending on your insurance company’s process, you may file a single claim with your expenses itemized or file multiple claims. In both cases, save all of your receipts during the time you are unable to live in your home to ensure your claim is processed efficiently. This includes your temporary lodging bills if you are staying at a motel or temporary apartment, and even meal and grocery receipts in some cases. You may need them to validate your expense claims.
3. Wait for claim review.
Your insurance company will review your claim and determine whether it is eligible for coverage and payout. The amount of time between filing a claim and receiving your reimbursement check varies, so ask your representative for a general timeline.
4. Receive a reimbursement check.
If your claim is accepted, you will receive a reimbursement check for the claim amount. You may spend this however you see fit.
What This Means For You
Loss of use coverage is a critical component of homeowner’s policies that provides coverage for necessary expenses if your home becomes uninhabitable due to a covered peril. This coverage can help offset the costs of temporary lodging and other additional expenses such as meals and laundry while your home is being repaired or rebuilt.
However, this coverage has limitations and restrictions, so it is important to review your policy to understand what is covered and the maximum amount that can be reimbursed. Ultimately, having loss of use coverage can help homeowners navigate unexpected events without incurring significant financial burdens.