Insurance exists to mitigate disasters and protect us financially. Two of the most common forms of insurance are homeowners insurance and rental insurance. These types of policies help to safeguard your home, belongings and finances in case of damages or personal liability issues on that property. But what happens if your home becomes too damaged to live in?
If your home ends up so damaged that you cannot stay there while it is being repaired, additional living expenses insurance will cover some, or all, of the costs associated with being displaced. For example, if your roof were to collapse then your additional living expenses insurance would help pay for your lodging, food and other expenses until you could safely live in your home again.
This type of insurance is generally folded into homeowners or renters policies but not all such policies cover additional living expenses. To make sure you have enough additional living expenses coverage, you will have to check your policy and potentially have it increased. But first, what exactly are additional living expenses, what do they cover and how much coverage should you have?
What are additional living expenses?
When it comes to what falls under additional living expenses, it can broadly include most costs that arise because of being displaced from your home. If you find yourself in this situation and you have additional living expenses insurance, you should always keep an itemized list of your expenditures. You will be surprised at what all you must spend money on that you can usually do for free at home. It is to cover these costs that additional living expenses insurance exists.
Room and board are the primary considerations when it comes to additional living expenses, but there can be more. Think about all the things you take for granted at home and do not have to pay for. Do you have a washer and dryer for laundry? That could be an expense while displaced. What about storage for items that would normally be safe in your home? This could be anything from jewelry to furniture to art. When your home is damaged and being repaired, it may not be safe for your belongings to remain there.
What is covered by additional living expenses?
If you’re wondering what is covered by additional living expenses on home insurance, the first consideration is room and board. Your lodging and meals during this displacement period are likely to represent your most substantial expenses. They are covered by additional living expenses insurance. Other covered items are costs of doing laundry, renting storage, pet boarding and most other expenses that arise as a direct result of not being able to use your home. This may even include car rentals and specialized tools or furniture that you need in order to continue your work while away from home.
For example: a family home is damaged in a fire and the family cannot live there for the next month. They have additional living expenses insurance, though and that insurance pays for a hotel for them to stay in. It also reimburses them for all those restaurant meals they have to eat since they are without a kitchen. When they must do more frequent laundry because they have access to fewer of their clothes, the insurance will reimburse those costs as well. And if the hotel does not let the family dog stay, then the insurance will cover the boarding cost for the dog until the home is safe.
It’s important to remember that your insurance company will be looking at all of your receipts and assessing whether or not your expenditures are reasonable. The company will not object to covering meals and a hotel, but you’d do best to avoid five-star restaurants and penthouse suites. To the insurance company this will seem like excess and they are likely to reject the claims or even charge you with fraud. Additional living expense insurance is meant to fill a gap created by your displacement, not to finance a vacation.
How much additional living expenses coverage should you have?
It can be a good idea to have up to the limit of additional living expenses insurance that your policy allows for. All insurance companies place upper limits on additional living expenses coverage, determined as a percentage of either the dwelling limit amount (the cost to rebuild) or the value of personal belongings in a residence. For homeowners policies, the additional living expenses coverage is usually capped at around 30% of the dwelling limit amount. For renters, it is about 30% of the value of their personal possessions within the rented property.
It is hard to predict how much coverage you might need in the face of a disaster, as the time it takes to repair your home is a significant factor. Without knowing ahead of time what the disaster might be and how severe it will be, there is no way of being sure how much coverage you will need. Therefore, some people choose to get as much additional living coverage as they can.
Frequently asked questions
Is loss of use the same as additional living expenses?
Yes. This type of insurance is known as additional living expenses insurance, loss of use insurance, and coverage D. These names are often used interchangeably for this type of insurance.
Is additional living expenses insurance common?
Yes. Most homeowners insurance policies include some amount of additional living expenses insurance. However, the amount built into your basic homeowner policy may not be enough to cover your needs in case of an emergency. For this reason, it is always good to check how much additional living expenses coverage you have.
How long does additional living expenses coverage last?
Usually, your insurance will continue to pay out additional living expenses until you can move back into your home or until you exceed your coverage. The policy will continue as long as your premiums are paid. Still, payouts will only arise in the face of costs associated with displacement.
How is additional living expenses insurance calculated?
Additional living expenses insurance is calculated as a percentage of either the dwelling limit amount (for homeowner policies) or the value of personal property within a rental property (for rental policies).