A home insurance policy covers damage to the physical structure of your home and your personal belongings. But what happens when your home is severely damaged and you have to temporarily move out while it’s getting repaired? This is where loss of use coverage comes in handy.
What is loss of use coverage?
Loss of use coverage, commonly referred to as additional living expenses, pays for essential costs while you aren’t able to live in your home. Instead of paying out-of-pocket for things like an extended stay hotel and daily restaurant visits, loss of use coverage reimburses you for those expenses.
Loss of use coverage only applies when your home is damaged in a covered peril. For example, if your home was severely damaged in a flood, loss of use coverage wouldn’t apply because home insurance doesn’t cover flood damage.
How does it work?
Say a major portion of your house gets burned down in a wildfire, rendering it uninhabitable for some time. Your homeowner’s policy would cover the cost of the rebuild, as well as any personal belongings that perished in the fire. In addition, your loss of use coverage would pay for your temporary living expenses, like hotel or Airbnb stays, food, pet boarding, parking fees and more.
What does loss of use coverage cover?
Loss of use coverage reimburses you for most living expenses while you’re unable to stay in your home. The basic coverages include:
- Residency expenses such as motels, hotels, rentals or an apartment
- Expenses associated with moving your items to storage
- Fuel expenses for extending your work commute
- Parking fees if you move to a temporary residence that requires it
- Laundry expenses since you don’t have access to your washer or dryer
- Pet boarding fees if you have to use pet boarding while you await repairs
- Excess of normal fees for meals and grocery expenses (say you’re unable to cook and spend $200 in restaurant fees as opposed to a regular grocery bill of $100, your insurance would reimburse you the difference)
Every insurance company offers slightly different coverages, so check with your insurance provider to see which items they cover under your loss of use policy. You should also find out if there are any limitations. Check for things like the maximum benefit amount for temporary living expenses, which would help you find an affordable hotel to stay at.
Most insurance companies provide loss of use coverage at 10%-20% of your dwelling’s value. So, if your home is valued at $300,000, then your benefits cap would be between $30,000 and $60,000.
Loss of use coverage works similarly for condo insurance. If your condo unit is damaged and you have to relocate, you would receive additional living expenses coverage related to the value of your unit. Some insurance companies will combine your dwelling’s value with your personal property coverages to calculate your loss of use coverage limit.
The same applies to renter’s insurance policies in that the loss of use coverage helps you maintain your standard of living while you wait to move back into your apartment. Insurance companies calculate your benefit based on a percentage of your personal property coverage.
In other instances, renters insurance companies may pay you a flat amount as outlined in your policy. It’s a good rule of thumb to speak with your insurance provider to learn more about how they calculate your benefit amount.
What does loss of use coverage not cover?
Insurance companies will help you pay for most of the expenses related to your temporary living situation. However, loss of use coverage doesn’t cover everything. Most notably, you can’t take advantage of loss of use coverage unless your home is damaged by a covered peril.
For example, damage caused by flooding or an earthquake isn’t covered by home insurance. Therefore, loss of use coverage wouldn’t apply if your home was severely damaged by either event. Loss of use coverage also can’t be used for things like elective renovations or general maintenance.
Most insurance companies have a list of excluded expenses. If you have to file a claim, make sure you know what those exclusions are. That way, you aren’t spending money on an expense only to find out later they won’t cover it.
How to get reimbursed for additional living expenses
If you have to use your additional living expense coverage, save receipts for all essential expenses such as your rent or hotel bill, moving expenses, restaurant receipts and pet boarding fees. This will help your insurance company calculate reimbursement expenses. And by having these receipts available, it could expedite the claims process.
Tips on filing a claim
Many insurance companies allow you to file a claim online. It’s quick, secure and convenient. It also allows you to provide any supporting documentation you might need such as receipts and pictures.
When you file a claim, ask your insurance company about its claims process. Find out how long it usually takes to process, approve and reimburse your claim.
Pay attention to any documentation the insurance company requires, and make a checklist of every step so you don’t miss anything important. If you forget a step or don’t provide all the required information, your claim could be delayed.
Frequently asked questions
How much is loss of use coverage?
Loss of use coverage is included in every home insurance policy, and the cost is already factored into your home insurance premium. Unfortunately, you can’t drop loss of use coverage to lower your rate.
Is loss of use covered by homeowners insurance?
Yes, loss of use coverage is automatically included in every homeowners insurance policy, with the exception of HO-1 insurance. In order to use your loss of use coverage, your home must be damaged by a covered peril. If your claim gets denied, you can’t take advantage of loss of use.
Do you pay a deductible on loss of use insurance?
No, you don’t pay a deductible for loss of use insurance. The full cost of your living expenses will be reimbursed up to your policy’s limit, and you don’t have to pay anything out-of-pocket.