Insurance policies can be confusing—especially with all the industry jargon.
While it's not ideal, it's normal not to understand every clause and rider in your coverage such as loss of use.
As you know, I like to explain insurance in "plain English," so here we go.
In this post I will go over what loss of use coverage is, how it works, and why you need to make sure that your home insurance policy will cover it.
What Is Loss of Use Coverage?
Imagine that lightning struck your home and started a fire, which quickly blazed out of control. Your lovely home was destroyed, along with all your possessions.
Or, a pipe burst in your upstairs neighbor's apartment, and your living room and walls are soaked. The repairs will be extensive, and you can't be in your home while they’re completed.
In both situations, not only are you unable to use your home and possessions, you'll have to find another place to stay. In some cases, that means you'll have to pay for a hotel or temporary apartment.
In situations like these, the loss of use (or loss of use coverage D) section in your homeowners or renters insurance should kick in to help cover the additional living expenses you'll incur. What is loss of use insurance coverage?
In short, if your home is uninhabitable due to a covered peril or prohibited use, loss of use coverage protects you from the extra costs of living elsewhere.
There is a slight difference between loss of use in a homeowners policy and a renters insurance policy. We'll detail the difference below.
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What Expenses Does Loss of Use Normally Cover?
Did you know that your renters or homeowners insurance policy likely covers water damage from a burst pipe but doesn't cover water damage from a flood?
It is distinctions like this that may trip you up if your home is damaged and you want your insurance to help offset costs.
We can't detail out each policy from every insurance agency. Some agencies have a different loss of use coverage, making understanding the nuances of your policy vital.
Loss of use coverage generally covers the following costs:
As always, it's best to talk to an insurance agent or the insurance company directly for details on your policy.
What Is Loss of Use Coverage in Home Insurance?
In 2018, 65.1 percent of the US population owned a home. On average, 80 percent of homes in the United States are owner-occupied.
Since having homeowners insurance is not mandated by law, many of those homeowners don't have homeowners insurance.
Whether you live in your home full-time, only part of the year, or rent it out to others, homeowners insurance protects you in two main areas.
Additional Living Expenses. Additional living expenses (sometimes called ALE insurance) coverage kicks in when a covered peril makes it impossible for you to live in your home. This covers any amount above your usual costs up to your coverage limit. You determine these limits when you purchase your homeowners insurance. This number is important to know.
Fair Rental Value. If you do not live in the home that was damaged, your homeowners insurance may cover your loss of rental income. Again, this coverage pays out only to your coverage limit.
What Is Loss of Use Coverage for Renters Insurance?
Loss of use coverage for renters insurance is much the same as it is for homeowners insurance.
We mention it separately, however, because the fair rental value coverage can be a bit more complicated.
If you are sub-letting out part of your apartment, make sure that your lease with your landlord documents that fact along with the amount you are charging.
Additionally, ensure that there are no limits on the amount of time you can have a sub-lease without qualifying as a business.
It's best to speak to your insurance agent about your policy's specifics before an accident happens.
Do I Have to Pay a Deductible for Loss of Use?
Typically, there is no deductible connected to a loss of use claim.
As always, this may change depending on your insurance company and your coverage.
It is best to verify this before you need to make a claim, however, even if you do have to pay a deductible, the insurance company usually just pulls it out of the money they will be sending you.
For example:
If you have a $500 deductible, and you are getting $25,000 for loss of use, you will get $24,500 which is minus the deductible.
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How to File a Loss of Use Claim
The worst has happened.
You're unable to live in your home, and the additional expenses have left you reeling.
You need help covering the extra costs.
First, gather your receipts—remember that your insurance company will be reimbursing you.
Without proof of your expenses, your claim may not be approved.
Some insurance companies will want you to fill out a general expense sheet when you file your claim before evaluating your expenses.
It's wise to keep something like this on file, if possible.
Reach out to your insurance company by phone or via their website to file your claim as soon as possible.
Even if you have yet to incur any expenses, they can guide you, let you know what you need, and even recommend helpful actions or contacts to ease your situation.
Taking Action
Loss of use coverage can help protect you and your family if you lose the use of your home in a disaster by covering some of your costs.
If you want to update your homeowners insurance, we’ve done the hard work for you—check out the top three companies or get your free quote for homeowners insurance or renters insurance today.