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Loss of Use Coverage Explained

Tuesday, August 1, 2023

Home insurance is essential for protecting one of your most valuable assets – your home. You may already know that standard home insurance policies cover damages to your property and liability, but did you know that they also usually cover the expenses you incur when your home becomes uninhabitable due to a covered loss? This is where Loss of Use coverage, also known as Additional Living Expense (ALE) insurance or Coverage D, comes into play. In this article, we will delve into the details of Loss of Use coverage, what it covers, what it doesn’t cover, how much it costs, and how to determine how much coverage is needed.

storm damage

What is Loss of Use Coverage?

Loss of Use home insurance is an important component of home insurance that provides financial protection when your home is damaged and rendered temporarily uninhabitable due to a covered loss, such as a fire, flood, or storm. It helps cover the additional living expenses you incur during the period of displacement, allowing you to maintain a similar standard of living until your home is repaired or rebuilt.

What Does Loss of Use Coverage Cover?

Loss of Use insurance covers various expenses incurred when you are unable to live in your home. This may include:

  • Additional living expenses: This includes costs associated with temporary accommodation, such as hotel stays, apartment rentals, or even a short-term lease on a comparable home.
  • Boarding expenses: If you have a pet that cannot stay with you while repairs are being made, Loss of Use can pay for the expenses to board them.
  • Food expenses: If you can no longer cook meals in your home, Loss of Use coverage can cover the additional costs of dining out or ordering takeout. For instance, if you usually spend $100 a week on groceries but are now spending $200 on food due to the cost of takeout, Loss of Use could cover the extra $100.
  • Storage expenses: If your belongings need to be stored while your home is being repaired, this coverage can help cover the costs of renting a storage unit.
  • Transportation costs: If you need to travel a longer distance from your temporary accommodation to work or school due to the displacement, Loss of Use coverage can help offset the increased transportation expenses.

Be sure to consult your specific policy details in order to see what qualifies for coverage. If you’re unsure, speak with your insurance provider. 

What Does Loss of Use Coverage Not Cover?

While Loss of Use coverage is a valuable component of your homeowners insurance policy, it’s important to understand that it does have some limitations. It does not cover:

  • Pre-existing living expenses: Loss of Use coverage only covers the additional expenses you incur due to the displacement. It does not cover your regular living expenses like mortgage payments or utility bills.
  • Uninhabitable conditions unrelated to covered losses: If your home becomes uninhabitable due to causes not covered by your insurance policy, such as maintenance issues or renovations, Loss of Use coverage will not apply.
  • Time beyond a reasonable repair or rebuild period: Loss of Use coverage is intended to provide financial assistance until your home is repaired or rebuilt within a reasonable time frame – usually 12-24 months, depending on your policy. If the repair or rebuild process takes longer than expected, the coverage may no longer apply.

How Much Does Loss of Use Coverage Cost?

The cost of Loss of Use coverage varies depending on several factors, including your insurance provider, location, home value, and the coverage limits you choose. Loss of Use coverage is typically included in your overall home insurance policy, and the cost is a percentage (often 10-30%) of the dwelling coverage amount or a flat rate for rentals.

Determining How Much Coverage Is Needed

To determine how much Loss of Use coverage is appropriate, consider the following:

  • Evaluate the risk: Assess the likelihood of experiencing a covered loss that could render your home uninhabitable. Consider factors like your location, climate, and the age of your property.
  • Review your circumstances: Analyze your personal situation, such as the availability of nearby family or friends to provide temporary housing or the capacity to absorb the additional living expenses on your own.
  • Calculate potential expenses: Estimate the potential costs you would incur if you were unable to live in your home. Consider accommodation, meals, transportation, and other relevant expenses.
  • Consult with your insurance provider: Discuss your needs with your Independent Insurance agent or provider. We can help you evaluate your risks and guide you in determining the appropriate amount of Loss of Use coverage for your specific circumstances.

What is the Loss of Use Exclusion?

Some policies may exclude certain causes of loss or impose specific limitations on coverage. Review your policy carefully to understand any exclusions or limitations that may apply.

What is Loss Assessment Coverage?

Loss Assessment coverage is different from Loss of Use coverage. Loss Assessment coverage applies to condominium or homeowners association (HOA) properties and protects against assessments levied by the association for shared property damage or liability claims.

Is Fair Rental Value the Same as Loss of Use?

Fair rental value refers to coverage that compensates you for the rental income you would have received if you had been able to rent out a portion of your home that becomes uninhabitable due to a covered loss. It is not the same as Loss of Use coverage, which primarily focuses on your additional living expenses during displacement.

Are you ready to talk about your homeowners insurance needs? Give us a call at Independent Insurance Associates! We work with multiple insurance partners to help get you the best rate with the most comprehensive coverage possible.