What Does Loss of Use Insurance Cover?

Loss of use insurance, often referred to as Additional Living Expenses (ALE) coverage, provides financial support when an insured asset becomes unusable due to a covered event. This coverage helps alleviate financial disruption by covering additional expenses incurred due to displacement, allowing individuals and businesses to maintain their standard of living or operations.

Core Principles of Loss of Use Coverage

Loss of use coverage is typically activated when direct physical damage to insured property, caused by a peril listed in the policy, renders it uninhabitable or unusable. Common covered perils often include events like fire, storms, water damage from burst pipes, and vandalism. However, perils such as floods or earthquakes are usually excluded and require separate policies.

This coverage aims to mitigate financial strain by covering extraordinary living or operating costs incurred due to displacement. These expenses must be “additional” and “necessary,” meaning they are beyond what would normally be spent. For example, if a family normally spends $100 on groceries weekly but incurs $300 due to eating out while displaced, the insurance would cover the $200 difference.

Loss of Use in Auto Insurance Policies

In auto insurance, loss of use coverage is frequently referred to as rental reimbursement or transportation expenses coverage. This optional coverage helps pay for the cost of a rental car or alternative transportation, such as public transit or rideshare services, while an insured vehicle is being repaired or replaced following a covered accident or incident. This coverage does not cover the cost of vehicle repairs, which falls under collision or comprehensive coverage.

Rental reimbursement coverage typically includes daily limits, often ranging from $20 to $50 per day, and overall maximum limits, which can be up to $1,500 or more per claim. The coverage usually applies for a specified number of days, commonly up to 30 days, or until the vehicle is repaired, whichever comes first.

Loss of Use in Property Insurance Policies

Loss of use coverage within property insurance policies, such as homeowners, renters, or landlord insurance, is commonly known as Additional Living Expenses (ALE) or Coverage D. This coverage addresses expenses incurred when a dwelling becomes uninhabitable due to a covered peril. This includes costs for temporary housing, such as hotel stays, short-term apartment rentals, or even increased utility costs if the temporary residence is less efficient.

Additional covered expenses often include increased food costs if cooking facilities are unavailable, laundry services, and pet boarding fees. The coverage aims to maintain the policyholder’s normal standard of living and is typically for a reasonable period required for repairs or relocation. Loss of use limits are often set as a percentage of the dwelling coverage, commonly ranging from 10% to 30% of the home’s insured value.

Loss of Use in Business Insurance Policies

In business insurance, loss of use coverage is primarily found within business interruption insurance, sometimes called business income insurance. This coverage helps businesses recover lost income and continuing operating expenses when operations are suspended due to direct physical damage to their property from a covered peril. It is designed to put the business in the same financial position it would have been in had no interruption occurred.

Business interruption coverage typically covers lost net income, which is the profit or loss before taxes that would have been earned, along with continuing normal operating expenses. Examples of continuing expenses include payroll, rent, utilities, and loan payments that persist even when the business is not operating. The coverage applies during the “period of restoration,” which is the time it takes to repair or replace damaged property and resume normal operations. This period usually begins after a waiting period, typically 24 to 72 hours, and can extend until the business is restored, often with policy limits or options for extended coverage.

Determining Your Loss of Use Benefits

Understanding how loss of use benefits are determined involves reviewing policy limits and durations. Policies typically feature daily limits for specific expenses, such as rental cars or temporary housing, and overall aggregate limits for the total amount of reimbursement. For property insurance, the duration of coverage is usually for a “reasonable period” necessary for repairs or relocation, or up to a specified time limit, such as 12 or 24 months.

Loss of use coverage generally does not have a separate deductible; instead, it is tied to the deductible of the primary property damage claim. Maintaining detailed records and receipts for all extra expenses is essential for reimbursement. Reviewing specific policy declarations is advisable to understand the exact terms, conditions, and any limitations that apply.