It’s a common ice-breaker question: If you had to leave your home and only take one thing, what would it be? While you may theoretically debate taking your laptop or your favorite pair of shoes, most of us don’t ever think we’ll actually be faced with that situation in real life.
But if the worst does happen and your home becomes uninhabitable, you’ll want to be protected. And if you have homeowners insurance, you already are.
Home insurance policies do more than just protect your home and the items inside — they also protect you. This means that if you aren’t able to stay in your home, you can get reimbursed for any extra money you pay to maintain your lifestyle. In home insurance lingo, this is known as loss of use coverage.
Loss of use coverage, also known as additional living expenses (ALE), is a portion of your home insurance policy that provides financial assistance if your home becomes unlivable. Say a natural disaster such as a hurricane or wildfire hits your town, damaging your home in the process. Loss of use coverage would help pay for a place for your family to stay while your home is being repaired, as well as food, transportation and even clothing costs.
Outside of natural disasters, other hazards that damage your home, such as water backups, mold growth or general water damage can make your home uninhabitable. Loss of use coverage makes sure your family can maintain their previous standard of living while keeping their health in tip-top shape.
Loss of use coverage extends past uninhabitable homes, assisting you with living expenses should your home become inaccessible. While uncommon, this can happen because of government regulation, emergency services or even a physical barrier.
To use this portion of your home insurance coverage, your home doesn’t need to be damaged (though nearby dwellings would need to be damaged). You do, however, need to prove that you can’t access your home. Take plenty of pictures of the blockade and if there are police reports of the incident, you can send those to your insurance company as well. Please note, however, evacuation orders for incoming storms would not be covered under prohibited use coverage.
If you rent out your property to others, the type of coverage you’ll receive under loss of use is a bit different than traditional homeowners. Your landlord insurance policy will likely include fair rental value coverage, which helps you recoup lost rental income. This coverage will provide you with protection, no matter if your rental property is uninhabitable from damage or simply inaccessible.
There’s a reason loss of use insurance is also known as ALE — because it covers any additional living expenses your family incurs while your home is unlivable due to a covered peril. This means that if you normally spend $200 a week on groceries for your family but end up paying $350 while you aren’t living at home, your insurance company will help cover the difference. Other expenses you can expect to get coverage from include:
While your insurance agent can give you an idea of your exact coverage amount, most providers cap your coverage limit for loss of use at 20% of your dwelling coverage (your declaration page should list this coverage amount). You can request to increase this coverage for a fee, which is a smart idea if you have a large family or a high living cost.
Since loss of use coverage comes included in your policy, you typically don't have to pay a separate deductible for it. Though that doesn’t mean you won’t have to pay anything. You’ll still be responsible for your regular expenses during that time, as well as your dwelling deductible while your home is being repaired or rebuilt.
To ensure you prepare properly for any damage that could come your way as a homeowner, you need to understand what will and won’t be covered by your insurance. Though loss of use coverage aims at taking extra expenses off your plate, it doesn’t provide reimbursement for costs you were already responsible for.
This includes your mortgage, rent, car payments, insurance premiums, HOA fees and many others. Because of this, having a generous rainy day fund can be a lifesaver when you have to live somewhere else while still paying your mortgage lender.
Similar to filing other types of insurance claims, you’ll need to provide proof of what you’re owed. For loss of use coverage, this means receipts of any expenses as well as a breakdown of your regular expenses (you may need to fill out a normal living expense sheet to prove this). These documents will help your provider understand how much more you’re spending on a daily basis.
But unlike other claims processes, insurance providers typically don’t pay out loss of use coverage upfront. You’ll have to pay for these additional expenses out of pocket and then collect a reimbursement at a later date.
Reviewing your home insurance policy every year is always a smart idea. And no matter if you live in a high-risk area or not, if you don’t have the loss of use coverage you need, give us a call. We’ll help you get back home.
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