How to Calculate Loss of Use of Home

When unforeseen damage makes your home uninhabitable, understanding the financial implications is important for homeowners. The concept of “loss of use of home” addresses the financial impact you may experience when displaced from your residence. This article provides guidance on how to calculate these additional costs.

Understanding Loss of Use Coverage

Loss of use coverage, also known as Additional Living Expenses (ALE) or Coverage D, is a standard component of most homeowners insurance policies. Its primary purpose is to financially support you when your home is rendered uninhabitable due to a covered peril, ensuring you can maintain your normal standard of living. This coverage helps pay for the necessary and reasonable expenses incurred while you are displaced.

The coverage typically includes two main components. Additional Living Expenses (ALE) cover increased costs of living that exceed your normal expenditures. For instance, if you usually spend a certain amount on groceries but must now eat at restaurants, ALE covers the difference. Fair Rental Value (FRV) applies if your home was rented out or if you rented out a portion of your home and lose that rental income because the property is uninhabitable.

Identifying Covered Expenses

Additional Living Expenses (ALE) typically cover costs beyond your normal household budget. These expenses must be reasonable and necessary, directly resulting from your displacement. Common examples include temporary housing, such as hotel stays or renting a temporary apartment or home. Increased food costs, such as restaurant meals or takeout, are also covered if you cannot cook in your temporary lodging.

Other reimbursable expenses can include temporary transportation costs, such as a rental car, increased fuel expenses, or public transport fees. Storage costs for personal property, increased utility costs at a temporary residence, pet boarding fees, and laundry expenses may be included. Only the increase in cost compared to your normal spending is covered, not the entirety of the expense.

Documenting Your Expenses

Meticulous record-keeping is crucial for a successful loss of use claim. Preserve all original documents, including receipts, invoices, and bank or credit card statements, as evidence of your expenses. A detailed log or spreadsheet can help organize each expense, noting the date, description, amount, and reason.

For temporary housing, obtain and retain lease agreements or detailed hotel bills. To demonstrate the “additional” nature of your expenses, maintain records of your normal living costs from before the incident. This might include prior utility bills, typical grocery spending, and regular transportation costs. Such comparison data allows the insurance company to accurately assess the difference between your normal and temporary living expenses.

Performing the Calculation

Calculating your loss of use involves comparing temporary expenses against normal living costs. For Additional Living Expenses (ALE), subtract your pre-incident normal living expenses from the total temporary living expenses incurred. The resulting difference represents the compensable ALE. For example, if your typical monthly grocery bill was $600, but while displaced, you spent $1,500 on restaurant meals, the additional living expense for food would be $900.

For Fair Rental Value (FRV), if applicable, determine the market rate your property could have commanded if it were available for rent. This can involve researching comparable rental listings in your area or consulting with local real estate professionals to establish a fair market rent. The lost rental income, typically calculated monthly, is reimbursed for the period your property was uninhabitable, often up to a policy limit or a maximum duration, such as 12 months. The total estimated loss of use combines these calculated additional living expenses and any lost fair rental value.

Navigating the Insurance Claim Process

After calculating and documenting your loss of use, initiate the claim with your insurance provider. Contact your insurer as soon as possible to report the incident and inform them of your displacement. They will guide you through their claims process and may assign an adjuster to your case.

Submit your compiled documentation, including all receipts, expense logs, and your summary calculation, to the insurance company. Review your specific insurance policy to understand your coverage limits, any deductibles that apply, and the maximum duration for which loss of use expenses will be covered. Maintain clear communication with the insurance adjuster for a smooth resolution.