What Does Loss of Use Mean in Home Insurance?

Home insurance policies include “loss of use” coverage, also referred to as Additional Living Expenses (ALE) coverage. It provides financial assistance when your home becomes uninhabitable due to a covered event, such as a fire or storm damage. Its purpose is to help policyholders manage unexpected costs of living elsewhere while their home is repaired or rebuilt. It aims to alleviate financial burden and maintain a similar standard of living for displaced homeowners. Understanding this coverage is important, as it offers a protective layer beyond repairing physical damage.

Understanding Covered Expenses

Loss of use coverage covers additional expenses incurred when a home is uninhabitable due to a covered peril. These are costs that exceed your normal living expenses. Examples include temporary housing, such as hotel stays or renting an apartment. Increased food costs, especially if you eat out more frequently due to a lack of cooking facilities, are also covered.

Other reimbursable expenses include increased transportation costs, like additional fuel or public transit fares, if your temporary residence is further from work or school. Storage fees for personal property are often included. Laundry services, if you lack access to a washer and dryer, and pet boarding fees may also be covered.

If you rent out a portion of your property, loss of use coverage can extend to “fair rental value” (FRV). This reimburses lost rental income from the uninhabitable portion of your home. It applies to the property’s rental value, not your actual rental history, and continues until repairs are complete or a time limit is reached. This coverage is for additional expenses; it does not replace regular mortgage payments or utility bills you would pay regardless of displacement.

Determining Benefit Amounts

Loss of use benefits are determined by the “actual loss sustained,” which means reasonable and necessary additional expenses due to displacement. Insurers reimburse the difference between your normal living expenses and higher costs while displaced. For instance, if your weekly grocery bill was $150 but increased to $400 due to restaurant meals, the policy would cover the $250 difference.

Policy limits for loss of use coverage are a percentage of your dwelling coverage, usually 10% to 30%. For example, a home insured for $300,000 might have an ALE limit between $30,000 and $90,000. These limits represent the maximum amount an insurer will pay for additional living expenses. Review your policy’s declaration page to understand your specific coverage limits.

Coverage also has time limits, extending for the shortest time to repair or rebuild your home, or until your household settles elsewhere. This duration is often limited to 12 or 24 months, depending on policy terms. The standard dwelling deductible, the amount you pay out-of-pocket before coverage begins, applies to the overall claim, not specifically to the loss of use portion. Maintaining detailed records and receipts for all additional expenses is important for substantiating your claim and facilitating reimbursement.

Filing a Claim

Initiate a loss of use claim by promptly contacting your insurance company once your home becomes uninhabitable due to a covered event. Explain the situation clearly and confirm the damage falls under your policy’s covered perils. Your insurer can provide guidance on necessary documentation and claim process steps.

Gathering comprehensive documentation is a key step. Keep meticulous records and save all receipts for additional living expenses, such as hotel bills, temporary lease agreements, restaurant receipts, and transportation costs. Maintain a detailed log of expenditures, noting how each expense is an increase from your normal spending, to support your claim. Some insurers may even provide a spreadsheet or log to assist with this record-keeping.

Communicate continuously with the insurance adjuster assigned to your claim. The adjuster will assess the damage and review your submitted documentation to determine eligible expenses. Reimbursement for additional living expenses is provided on a reimbursement basis; you pay upfront and are later compensated by the insurer, often via direct deposit or check. While insurers strive for timely processing, the review and reimbursement timeline can vary. If disagreements arise regarding the claim, inquire about internal appeals or review processes with your insurance provider.