What Does Loss of Use Mean in Homeowners Insurance?
Understand a key homeowners insurance benefit that covers temporary living costs when your home is unlivable after a covered event.
Homeowners insurance protects against unforeseen events that can impact a residence. When a home becomes temporarily uninhabitable, understanding the policy’s provisions for alternative living arrangements is important for managing potential financial disruptions.
Understanding Loss of Use Coverage
Loss of use coverage, also known as Coverage D or Additional Living Expenses (ALE), is a standard component of most homeowners insurance policies. It provides financial assistance when a home becomes uninhabitable due to a covered peril, such as a fire or windstorm. The primary purpose is to reimburse necessary increased costs of living, enabling policyholders to maintain their normal standard of living while their home is repaired or rebuilt. This coverage is designed to cover expenses beyond what would normally be spent, not to generate a profit.
Eligible Expenses
Loss of use coverage primarily addresses Additional Living Expenses (ALE) and, in specific cases, Fair Rental Value (FRV). Additional Living Expenses encompass a range of increased costs incurred while displaced from one’s home. These typically include:
Temporary housing, such as hotel stays or rental homes.
Increased food costs, specifically the amount exceeding normal grocery expenses.
Temporary transportation costs, like additional fuel or public transportation fees.
Laundry services.
Pet boarding fees.
Fair Rental Value (FRV) applies if a portion of the damaged home was rented out and that rental income is lost due to the covered event. The policy would then reimburse the lost rental income. Regular, ongoing expenses that would be incurred regardless of the home’s habitability, such as mortgage payments, property taxes, or typical utility bills, are generally not covered by loss of use. The coverage focuses on the additional expenses directly resulting from the displacement.
Activating and Limiting Coverage
Loss of use coverage activates when a home becomes uninhabitable due to a peril covered under the homeowners insurance policy. For instance, damage from fire or windstorms typically triggers this coverage, while floods or earthquakes are generally excluded unless specific additional policies are in place. The duration of coverage is limited to the shortest time necessary for the home to be repaired or for the household to secure a permanent new residence. Policies often specify a maximum duration, such as 12 or 24 months.
Financial limits also apply to the amount an insurer will pay. This limit is commonly expressed as a percentage of the dwelling coverage amount, often ranging from 10% to 30% of the home’s insured value. For example, a home insured for $300,000 might have a loss of use limit of $60,000 if the percentage is 20%.
Filing a Loss of Use Claim
To file a loss of use claim, policyholders should notify their insurance company as soon as possible after their home becomes uninhabitable. This initiates the claims process and allows the insurer to provide guidance. Documenting all additional expenses incurred is important. Policyholders must collect and organize receipts, invoices, and any other relevant documentation for temporary housing, food, transportation, and other related costs. Insurers typically require this detailed record-keeping because reimbursement is often provided after expenses have been paid by the policyholder. Maintaining a clear record helps substantiate the claim and facilitates a smoother reimbursement process.