What is loss of use coverage?

Loss of use is a type of home insurance coverage that pays for expenses when you can't live in your home due to a covered loss. On your policy documents, it's listed as coverage D - loss of use or additional living expenses (ALE.)

"Loss of use coverage is typically included in a standard homeowners insurance policy. It's also sometimes called 'additional living expenses, (ALE) coverage,’" says Jack Dowd, account executive with The Dowd Agencies in Holyoke, Massachusetts.

If your home is uninhabitable due to a covered loss - such as fire - your insurance company will provide reasonable accommodations and cover these related expenses until you can move back into your house.

Additional living expenses covers expenses above and beyond what you normally would pay for before your home was damaged. Hotel or rental bills, necessary restaurant meals and food charges, transportation costs and fees to store your possessions are among the covered expenses.

"This coverage pays you back for increased living expenses you incur. But the keyword here is 'increased.' For example, if you typically ate out every meal before the loss, and then you continue to dine at restaurants for every meal after the loss, these dining charges wouldn't be covered because you spent at the same rate you did before the loss," says Joshua Scott, a Scottsdale, Arizona-based executive general adjuster with The Greenspan Co./Adjusters International.

On the other hand, the additional cost of restaurant dining could be claimed if you rarely went to restaurants before the loss but were forced to do so while living in a hotel during repairs.

Your policy will not cover expenses you were already responsible for before the loss, such as loan payments, childcare bills and normal grocery bills.

Also, loss of use coverage does not apply when flood damage is involved. If you have flood insurance through the National Flood Insurance Program (NFIP), you're also out of luck -- it won't cover additional living expenses. However, if you have private flood insurance, it is typically included.

Finally, you can't file a loss of use claim if you live elsewhere temporarily because of something not covered by home insurance. For instance, if you go to a hotel because your heat isn’t working due to a power outage, you will not be covered. The coverage only applies when your house is being repaired due to a covered loss.

Additional living expense coverage is automatically included in your homeowners insurance for no extra charge unless otherwise specified.

This coverage is not broken out as a separate line item cost in your homeowners insurance policy or rate, so it's difficult to determine what percentage of your premium goes toward loss of use coverage.

"Typically, it accounts for 10% to 20% of your premium," says Kimesha Smith, attorney and director of client relations for Miami-headquartered Insurance Litigation Group.

How much additional living expense coverage you'll need will depend on many factors.

"In general, the standard loss of use coverage in a homeowners policy is tied to the total amount of dwelling coverage. I often see loss of use coverage in an amount equal to 20 to 30% of the total dwelling coverage," Dennis Sawan, a Toledo-based insurance litigation attorney, says.

Say your home is valued by your insurance company at $300,000. That means your insurer may automatically provide up to $90,000 in loss of use coverage (30% of your total dwelling coverage) for the year.

To calculate loss of use for home insurance, ask yourself: How long, if your home was destroyed, would it take to rebuild that property?

"Everyone's insurance needs are different. Consider whether the automatic amount is enough to cover any necessary increases in your living expenses if your residence was to become uninhabitable while the damage was being repaired," says Andy Jones, national property product supervisor for COUNTRY Financial in Bloomington, Illinois. "For instance, a one-person household will not need to rent as large of a home as an eight-person household if they were displaced due to a covered loss."

To be safe, your loss of use coverage should probably cover up to 12 months of basic, comparable living expenses.

Fortunately, you can request an increase in additional living expense coverage, which may slightly increase your premium. To best determine how much loss of use coverage you need and what it will cost to bump up this protection, contact your insurance company.

You don' need to file a separate home insurance claim for loss of use. It's included as part of the original claim you would make if your home is damaged or destroyed.

"Once a claim is determined to have resulted from a covered loss, your insurer will begin to make accommodations with you for loss of use payments, including working with you to determine an alternate living arrangement that can meet your satisfaction," Sawan says.

Be prepared to complete a form breaking down your normal monthly living expenses. Also, be ready to submit receipts and invoices to your insurance company for all the increased living expenses you pay while you are forced to live outside your home. Keep careful records and save vouchers for every transaction.

"You should submit these receipts and invoices as they accrue so that you can be reimbursed over time as long as needed and up to 12 months," Smith says.