What Is Loss of Use on Homeowners Insurance?

Loss of use coverage, often referred to as Additional Living Expenses (ALE) or Coverage D, is a standard component of most homeowners insurance policies. It provides financial assistance when a covered event renders a home uninhabitable, helping policyholders manage the increased costs of living elsewhere temporarily. This coverage aims to maintain a policyholder’s normal standard of living during the period their home is undergoing repairs or rebuilding.

Understanding Loss of Use Coverage

Loss of use coverage in a homeowners insurance policy activates when a home becomes unsuitable for habitation due to a peril covered by the policy. This means the damage must stem from an event like a fire, windstorm, or vandalism, rather than an excluded peril such as flooding. A home is deemed “uninhabitable” if it lacks essential services like heat, plumbing, electricity, or water, or if structural damage makes it unsafe to occupy. The coverage ensures that policyholders can maintain their customary living standards, not upgrade them, during displacement.

The expenses covered under loss of use must be “reasonable and necessary” to uphold the policyholder’s normal standard of living. Insurance policies impose limitations on this coverage, often expressed as a percentage of the dwelling coverage (Coverage A). Common limits range from 10% to 30% of the dwelling coverage, such as $60,000 to $90,000 for a $300,000 dwelling. Additionally, policies specify time limits, typically 12 to 24 months. While the primary damage claim may have a deductible, loss of use coverage does not have a separate deductible.

Expenses Included in Loss of Use

Loss of use coverage covers additional living expenses that exceed a policyholder’s normal costs. These are incremental expenses incurred because the home is uninhabitable. For instance, if weekly grocery spending typically amounts to $100 but increases to $300 due to dining out, the insurance would cover the $200 difference.

Common expenses covered include:
Temporary housing, including hotel stays, motels, or temporary apartment/house rent.
Food expenses that exceed normal grocery bills, such as meals eaten out.
Transportation costs, including additional mileage, parking fees, or public transport fares.
Increased utility costs at temporary housing.
Laundry costs if facilities are unavailable.
Pet boarding fees.
Storage fees for belongings.

For policyholders who rent out a portion of their home, fair rental value coverage is included under loss of use. This provision reimburses the landlord for lost rental income if the rented portion of the property becomes uninhabitable due to a covered peril. This coverage applies only to the lost rental income, not to the tenant’s personal expenses or property damage.

Steps to Claim Loss of Use

Initiating a loss of use claim requires prompt action and meticulous record-keeping. The first step involves immediately notifying the insurance company about the damage and the home becoming uninhabitable. This allows the insurer to guide the policyholder and assign a claims professional.

Documenting the damage is important. Taking photographs or videos of the affected areas provides visual evidence supporting the claim. Throughout the displacement period, maintaining thorough records of all additional expenses incurred is essential. This includes saving every receipt, invoice, and bill for temporary housing, meals, transportation, and any other qualifying costs. A detailed log noting the date, amount, and nature of each expense can further streamline the process.

Clear communication with the claims adjuster is important. Policyholders should discuss temporary housing options and understand the insurer’s preferred method for submitting expense documentation. Submitting expenses early and often can facilitate quicker reimbursement. While the insurer may provide assistance in finding temporary accommodations, the policyholder is responsible for paying the expenses initially and then submitting them for reimbursement.