Additional living expenses
Many people purchase homeowners insurance or renters insurance to financially protect themselves against disasters. However, if your home ends up so damaged that you are unable to stay there while it is being repaired, you may want additional coverage. Additional living expenses coverage, also called loss of use coverage, is designed to pay for the costs associated with being displaced.
Additional living expenses coverage is automatically included in many homeowners, condo owners and renters insurance policies, but not all. What exactly are additional living expenses, how does this coverage work and how much should you have? Bankrate’s insurance editorial team conducted research to help you navigate additional living expenses coverage.
What are additional living expenses?
Additional living expenses coverage covers costs that arise from being displaced from your home after a covered loss. For example, if your home is uninhabitable after sustaining tornado damage, your additional living expenses coverage could help pay for your lodging, food and other expenses until you can safely live in your home again. If you find yourself in this situation and you have additional living expenses coverage, you may want to keep an itemized list of your expenditures. Loss of use coverage can help cover often-overlooked expenses.
The primary additional living expense for most people will likely be room and board, which could mean a hotel bill or even a rental home. Your home insurance provider will likely cover other expenditures as well. You may need to pay for a laundromat or laundry service while displaced. Your pet may need to be boarded. You may find yourself eating out more, especially if your temporary residence does not have cooking facilities.
What is covered by additional living expenses?
If you are wondering what is covered by additional living expenses on home insurance, you may want to start by considering room and board. Your lodging and meals during a displacement period are likely to represent your most substantial expenses. These costs are generally covered by loss of use coverage. Other typically covered expenses include the costs of doing laundry, renting storage, pet boarding and most other expenses arise as a direct result of not being able to use your home.
Consider a family home that is severely damaged in a fire. While the home undergoes repairs, the family will likely have to move out. They have additional living expenses insurance that pays for lodging in a hotel. This insurance coverage could also reimburse them for restaurant meals since they are without a kitchen. If the hotel does not have laundry facilities, the additional living expenses coverage could also pay for laundromat fees. And if the hotel maintains a no-pet policy, the insurance might also cover costs to board the family dog until the home is habitable again.
You may want to keep in mind that your insurance company will be checking your receipts and assessing whether or not your expenditures are reasonable. Your provider will not likely object to covering meals and a hotel, but unreasonable expenses — like elaborate meals or a penthouse suite — could be denied. If you spend excessively, your insurance company could reject your claim and could even charge you with fraud. Also, additional living expenses coverage will only help to pay for these costs after a covered loss. If your home is damaged by a peril that is not covered by your home insurance policy, your additional living expenses coverage will not come into play.
How much additional living expenses coverage should you have?
Typically, additional living expenses coverage defaults to a percentage, generally 20% to 30%, of your dwelling coverage, meaning that you do not need to choose your coverage amount. However, if you need to, you may be able to increase the amount of coverage or opt for a level called “actual loss sustained.” This means that there is no set dollar amount on the coverage and that the insurance company agrees to pay all reasonable expenses.
Some financial experts recommend purchasing as much additional living expenses coverage as you can afford, since you can never predict what kind of disaster will befall you and for how long you may be displaced. Other insurance professionals recommend that you keep track of the costs for hotels, rentals, restaurant meals and other likely expenses and calculate how much you might need for 30 to 60 days of displacement.
Frequently asked questions
Is loss of use the same as additional living expenses?
Yes. This type of insurance is known as additional living expenses coverage, loss of use insurance and coverage D. These names are often used interchangeably.
Is additional living expenses insurance common?
Yes. Most homeowners insurance policies include some amount of additional living expenses coverage. 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, you may want to check how much additional living expenses coverage you have, determine how much you might need and adjust your policy accordingly.
How long does additional living expenses coverage last?
Typically, your insurance carrier will continue to pay out additional living expenses until you can move back into your home or until you meet your coverage level, whichever comes first.
How is additional living expenses insurance calculated?
Additional living expenses coverage is calculated as a percentage of either the dwelling limit amount (for homeowner policies) or the value of personal property within a renters insurance policy.