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Loss of use coverage (or coverage D) is typically included in most homeowners and renters insurance policies and provides homeowners with reimbursement for two main things: additional living expenses and lost rental income. Unlike other parts of your insurance policy that repair or replace your damaged property, loss of use protects you from having to pay living expenses if your home becomes uninhabitable. Knowing exactly what is covered by loss of use insurance may help you negotiate with your insurance company if you ever need to file a loss of use claim.
- What is loss of use coverage in homeowners insurance?
- Loss of use in renters insurance
- What's covered by loss of use insurance?
- Tips on filing a loss of use claim
Typically, as long as your home suffers a covered peril, you could be eligible for the protection that your loss of use coverage affords. For example, if your home were destroyed by a tornado or by a fire, your loss of use would cover the expenses needed for you to temporarily relocate. However, since flooding is often excluded by most homeowners and renters insurance policies as a covered peril, your loss of use coverage wouldn't cover this type of damage.
What Is Loss of Use Coverage on Homeowners Insurance?
Loss of use coverage, also known as coverage D, provides two main forms of protection.
Additional Living Expenses Coverage (ALE insurance): ALE insurance reimburses homeowners for additional living expenses stemming from having to live away from home after a covered loss. For example, if your house partially burns down and becomes uninhabitable, your loss of use coverage would reimburse you for the cost of a hotel, up to your coverage limit.
Fair Rental Value: Fair rental value, also known as loss of rent insurance, reimburses you for lost rental income if you're renting a home and it becomes unlivable due to a covered loss. For instance, if you were renting out your home for $1,000 a month, that is the amount that you would be reimbursed under fair rental value coverage.
Most homeowners insurance companies include loss of use coverage in their policies and place a limit as a percentage of your dwelling coverage. For instance, if your limit is 30% and your dwelling coverage limit is $200,000, then you would be covered for up to $60,000 under your loss of use insurance.
Keep in mind that policy limits vary by insurance company and by policy, so if you have questions regarding your specific loss of use coverage limit, it's best to ask your insurer. You can typically increase your coverage limit at an additional cost.
Other Loss of Use: Prohibited Use
Prohibited use is included under loss of use coverage. Prohibited use applies when a governmental authority prohibits residents from accessing their undamaged homes. For instance, if local authorities restrict you from entering your neighborhood due to nearby tornado damage, but your home is unaffected, prohibited use coverage would apply.
In this scenario, you could file a loss of use claim for additional living expenses without damage to your home. Keep in mind that an order to evacuate would not trigger coverage. In order for you to be able to file a prohibited use claim, there would need to be physical damage to neighboring homes.
Loss of Use in Renters Insurance
Your also provides you with additional living expenses to protect you from extra costs if you have to leave your home. While your renters insurance also includes fair rental value, it might say that you can't rent your home for more than a certain number of days per year, like 90, without having to classify it as a business. In other cases, you may not be able to make more than a couple thousand dollars from renting and still receive coverage from your loss of use.
Since most renters insurance policies state they'll only provide coverage to you as long as you "occasionally" rent out your apartment, it could be a good idea to speak to a representative for clarification. Additionally, you must also stay in accordance with your lease's stipulations about whether you're allowed to let any part of your apartment or house to other tenants.
Renters insurance is relatively inexpensive when compared to other forms of insurance, such as homeowners or auto. In fact, the average cost of renters insurance is only $187 per year. Given this, we recommend you consider increasing your renters insurance coverage limits if you're a renter living in a city with a high cost of living.
What's Covered by Loss of Use Insurance?
As previously mentioned, loss of use insurance typically provides coverage for additional living expenses as a result of a covered loss. In simpler terms, this means you would be covered for expenses you wouldn't ordinarily pay if you were living in your own home.
For instance, 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
- Credit check fee associated with renting a temporary residence
- Cellphone overages incurred as a result of losing a landline
- Cost of increased mileage to your place of employment
- Cost of setting up utilities in your temporary home
- Increased cost of meals
If you're renting your home or part of your home, and it becomes unlivable due to a covered loss, the rental income you're missing out on would be reimbursed under fair rental value coverage. Keep in mind that your insurance company won't cover expenses that are not incurred during this period, such as utilities.
Tips on Filing a Loss of Use Claim
If you plan to file a loss of use claim, it's helpful for you to keep all receipts that stem from additional living expenses. Payments resulting from loss of use claims are typically made after the expense is incurred. This means your insurance company will reimburse you rather than covering the cost upfront.
When you file a loss of use claim, your insurance company will evaluate the additional living expenses that you submit and then make a determination based on whether the expenses exceed your normal living expenses. Some homeowners insurance companies will ask you to outline your normal living expenses.
As a result, we recommend that all homeowners (even those who haven't suffered a loss) keep records of their normal living expenses. Knowing your normal living expenses and tracking them with receipts will make it easier for you to negotiate with your insurance company if you ever need to file a loss of use claim.