What Is Mortgage Extra Expense Coverage?

Mortgage extra expense coverage is a specific type of insurance protection designed to assist homeowners with increased costs when their home becomes uninhabitable due to a covered event. This coverage provides financial support, helping to alleviate the burden of unexpected expenditures during a period of displacement. Its general purpose is to ensure that policyholders can maintain a normal standard of living without facing severe financial strain while their home is being repaired or rebuilt.

What Mortgage Extra Expense Coverage Is

Mortgage extra expense coverage is typically found as part of “Additional Living Expenses (ALE)” or “Loss of Use” coverage within standard homeowners insurance policies. It functions to cover increased and necessary living expenses incurred when a home is unlivable due to a peril covered by the policy.

This coverage aims to bridge the financial gap between your normal living costs and the higher expenses you face while displaced. It specifically addresses the extra costs of maintaining your regular standard of living, not your everyday expenses.

Some specialized endorsements, often called “Mortgage Extra Expense” endorsements, may cover increased mortgage interest if you need a new mortgage at a higher rate after a total loss. These are distinct from broader ALE coverage.

For example, if you typically spend $100 per week on groceries but must now spend $300 eating out due to displacement, the coverage would generally reimburse the $200 difference.

Common Inclusions and Exclusions

Mortgage extra expense coverage, often referred to as Additional Living Expenses (ALE) or Loss of Use, typically includes specific types of costs incurred due to displacement, such as temporary housing, hotel stays, or rental of an apartment or house. Other covered expenses might involve increased utility bills at your temporary residence, extra food costs from dining out because you lack cooking facilities, and laundry services if you cannot access your own machines.

The coverage can also extend to additional transportation costs, such as increased fuel expenses or public transportation fares if your temporary location is farther from work or school. Pet boarding fees and storage fees for personal property that had to be moved from the damaged home are also frequently included. These expenses are generally covered when your home becomes uninhabitable due to a peril listed in your insurance policy, such as fire, smoke, windstorms, explosions, falling objects, or water damage from a burst pipe.

However, this coverage comes with common exclusions. It typically does not pay for your normal mortgage payments, as these are considered ongoing expenses regardless of displacement. Damage from perils not covered by your policy, such as floods or earthquakes, are typically not included unless you have specific endorsements for these events. Intentional damage or expenses resulting from routine maintenance issues are also usually not covered.

Policy Details and Claim Process

Policy limits for mortgage extra expense coverage typically include both a monetary cap and a time limit. The monetary limit is often a percentage of your dwelling coverage, commonly ranging from 10% to 20% of the home’s insured value, though some policies may offer 20% to 30%. For instance, if your dwelling coverage is $300,000, your ALE coverage might be between $30,000 and $60,000. There is also usually a time limit, such as 12 or 24 months, dictating how long the insurer will pay for these expenses.

The deductible for your homeowners insurance policy generally applies to the overall claim for property damage, not specifically to the ALE portion. Once your deductible is met for the covered peril, the ALE coverage begins to pay for eligible increased expenses. It is important to review your specific policy documents to understand how your deductible applies and any specific limitations on ALE coverage.

Initiating a claim involves several steps. First, you must notify your insurance company promptly after the covered event renders your home uninhabitable. An insurance claims adjuster will then be assigned to your case to assess the damage to your home and determine the extent of your displacement. They will also guide you on the types of expenses that qualify for reimbursement under your policy.

To support your claim, you will need to submit detailed documentation. This includes keeping records and receipts for all increased expenses, such as temporary housing costs, restaurant bills, pet boarding fees, and storage unit invoices. Proof of displacement, such as a statement from a contractor, may also be required. Some insurers may offer an advance payment to help with immediate needs, with subsequent reimbursements based on submitted receipts.

After submitting your claim and documentation, the insurance company will review the information. Reimbursement for eligible expenses is typically provided on a reimbursement basis, meaning you pay for the expenses upfront and then submit receipts for repayment. The review process ensures all submitted expenses are necessary and directly related to your displacement due to a covered peril.