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Understanding loss of use home insurance coverage

What Is Loss of Use Home Insurance Coverage?

One of the most useful parts of home insurance coverage is Loss of Use. If ever you are looking into home insurance quotes, it is best that you also weigh in this coverage. Understanding each coverage in your policy will make your home insurance one of your most valuable assets.

Defining Loss of Use

Loss of Use coverage provides you with reimbursement for two things

In an unfortunate event that you cannot live in your insured property due to a covered loss, this coverage will be one of the most helpful protection that you can get. Usually, insurance companies allow policyholders to increase the limits of their coverage. Understanding what is exactly included in your loss of use may help you during claims especially if you need to negotiate with your insurance company.

  • Additional living expenses while your home is being repaired or rebuilt.
  • Loss of rental income

Additional Living Expenses (ALE) Coverage

With this coverage, you will be able to get reimbursement if you are required to live away from your home due to a covered loss. In your insurance policy, you will usually find details of this coverage under Coverage D.

A good example is if your home is partially damaged due to flooding and it becomes uninhabitable, this policy will reimburse your expenses for the hotel stay up to the limit of your coverage. This coverage is typically part of every policy and helps you pay for your expenses from fuel to groceries. If you think that you will be living away from your home for a prolonged period of time, it is crucial to keep your receipts from your transactions because you will need those to file a claim.

Loss of Rental Income

Also known as Fair Rental Value, this will reimburse your income in case a covered property becomes uninhabitable (therefore cannot earn its usual income). For example, if you are renting out your house for $1,000 every month, you will be reimbursed with that amount.

Understanding How Loss of Use Works

Loss of Use is typically included in most home insurance policies. However, most companies also impose a coverage limit to these claims and it will usually depend on the total home insurance coverage. For example, if your total coverage limit is $200,000 and loss of use is at a 30% limit you will be covered up to $60,000.

The limit will vary from one insurance company to another, so it’s crucial that you review your policy carefully before signing up. Moreover, many insurance companies will allow you to increase your limit, so you should take advantage of these opportunities. Additionally, loss of use can only be applied to any covered events. For example, you cannot use a loss of use claim if you do not have flood insurance and your home is suddenly flooded.

For some premium insurance company like AIG or Chubb, they offer unlimited in their standard policies. Which means these insurance companies will reimburse all of your reasonable expenses while your home is being repaired or rebuilt. However, most companies typically impose a 20%-30% limit.

Prohibited Use

Most insurance companies will also allow you to file loss of use coverage during a declared prohibited use. “Prohibited use” is when governmental authorities prohibit residents to access undamaged homes. For instance, if authorities do not allow you from entering your area due to nearby tornado damage, even if your property is unaffected. The evacuation order, however, does not automatically mean you can file a loss of use. In instances of an evacuation order perhaps for tornado or flooding, your house should sustain damage before you can file for a loss of use.

Typical Coverage for Loss of Use

Loss of use is very helpful during unpredictable events. It can help you with any additional living expenses that you may incur while you cannot stay in the comfort of your home. For example, if you normally spend $100 per month on fuel and you needed to rent an apartment further away from your workplace due to a covered loss, then you may enjoy a reimbursement of this added expense. Some additional expense that may be covered are:

  • Accommodation expenses
  • Rental payment in case you need to rent an apartment or home temporarily
  • Additional food expenses
  • Additional mileage or fuel expenses
  • Public transportation
  • Car rental expenses
  • Parking expenses
  • Storage unit expenses
  • Clothing expenses
  • Pet boarding expenses
  • Laundry expenses
  • Moving costs

Tips for Getting Reimbursement or Filing A Claim

Reimbursement of additional expenses is usually sent after you have made your expenses. Most of the time, you will be repaid on a monthly basis for the previous month’s expenses. Nevertheless, on special circumstances, some insurance companies may allow you to take a loss of use check upfront.  

Keep all receipts

If you feel that you need to file a loss of use claim, make sure that you keep all of the receipts of your extra expenses. One thing you need to remember is that these extra expenses should be within your “normal reasonable living expenses”. You need to be able to provide proof that your expenses are higher than your typical costs of living.

Spend wisely

When you file a loss of use claim your insurance company will evaluate your additional living expenses and will determine whether you exceeded your regular cost of living. For homeowners with loss of use coverage, it will be a good practice to always keep tabs of your expenses.

File the claim

In order to file a loss of use claim, you may need to contact first your insurance company or agent directly. In some cases, insurance companies have websites or apps where you can submit a claim. You can make use of these services to make your claims easier.

Be prepared

For loss of use rental income claim, you may be required to process this differently. You need to provide your claims agent with important papers such as lease agreements, bank details, tax forms or any other papers that will prove that the damage rendered your property to lose income.  A good tip is that most renters insurance are mostly inexpensive when compared to other coverage, so it is highly recommended to increase insurance coverage especially if you are renting a property in a high-cost area.

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