Loss of Use Insurance: How to Avoid Living Under a Rock

Loss of Use Insurance is a very important but not very well-understood component of your homeowner insurance policy.   Why is it important?

If you have damage to your home that is covered by your policy, and you must leave while it’s being repaired, where would you stay? Would the cost of a hotel or temporary apartment or temporary home fit into your budget? If the loss was devastating, would you be able to buy new clothes and new furnishings?

Loss of use coverage, if included in your homeowner’s insurance policy is designed to help with these types of expenses. If your home is damaged by a covered loss, loss of use coverage can help pay for your additional housing and living expenses while your home is being repaired or rebuilt.

Also known as additional living expenses (ALE) insurance, or Coverage D can help pay for the additional costs you might incur for reasonable housing and living expenses if a covered event makes your house temporarily uninhabitable while it’s being repaired or rebuilt.

How Does Loss of Use Protection Coverage work?

As previously mentioned, loss-of-use insurance typically provides coverage for additional living expenses resulting from a covered loss. In simpler terms, this means you would be covered for expenses you wouldn’t ordinarily have if you were living in your own home. For example, let’s assume you typically spend $100 on gas per month, but that amount has increased to $150 because you live in a hotel that is farther from work while your home is repaired. In this scenario, you would be reimbursed $50, which is the incremental cost. A list of common additional living expenses that are typically covered under loss-of-use insurance is provided below.

  • Cost of temporary housing, such as a hotel or a motel.
  • Taking public transportation.
  • Boarding a pet.
  • Additional food expenses.

What Is Not Covered by Loss of Use Protection?

Loss of use protection does not cover expenses that you were already responsible for before the loss. You will still be responsible for paying your mortgage, insurance, childcare expenses, and so on. The important thing to remember is that loss of use protection is for additional expenses you become responsible for because you can’t live in your home.

For example, if your family normally spends around $200 a week on food, but now you are staying in a hotel without a kitchen, you may need to eat out for most of your meals. Eating out is costing you $300 a week. Under the loss of use coverage, the $100 additional expense per week would be covered.

Do I Have to Pay a Deductible on Loss of Use Insurance?

You may be responsible for a deductible for other parts of your claim. Your homeowner’s insurance agent can explain your deductible further and help you explore other coverages you may want to add to your homeowner’s policy. The goal is to make sure you have coverage that fits your needs.

How Much Loss of Use Coverage Do I Need?

Everyone’s insurance needs are different. Loss of use coverage is typically based on your dwelling coverage and calculated at about 20% to 30% of the dwelling coverage limit. Consider whether this is enough to cover any necessary increases in your living expenses if your residence is not habitable while damage is being repaired or replaced.

Consult your insurance agent about your policy to understand the amount of loss of use coverage you have; this is subject to coverage terms and limits. Or speak with an NDI Agent who can discuss what Loss of Use limits would work best for you.

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