What Is Loss of Use Coverage?
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You expect your homeowners insurance to protect the structure of your house and the belongings you store in it. But what happens if a covered peril like a fire displaces you from your home? While the smoke clears and you rebuild or repair, you’re going to need to live somewhere else. Hotel bills and restaurant tabs can add up fast. Fortunately, with loss-of-use coverage, your insurance provider can help pay for those expenses.
In the Coverage D section of your home insurance policy, you’ll find your loss-of-use coverage definition (i.e., what it covers) and policy limit (i.e., how much coverage you get). You might also see this protection called additional living expenses (ALE) coverage. You can get loss-of-use coverage in a renters insurance policy too.
What does loss-of-use insurance cover?
The loss-of-use section of your homeowners or renters insurance policy covers additional living expenses, loss of rental income and prohibited use.
Additional living expenses (ALE)
A covered peril like a fire or a tree branch falling through your home could make it impossible to live in it. During the repair process, your loss-of-use coverage picks up the tab for expenses like:
- Hotel or rental apartment costs
- Restaurant bills and excess grocery costs
- Moving costs
- Fuel and mileage if you have to commute farther
- Storage costs for items you need to move out of your house
- Pet boarding
The Coverage D portion of your policy — like all sections of your policy — has limits. Try to keep your expenses within the range of your policy to avoid too many out-of-pocket costs.
Loss of rental income
If you own a home but rent it out or rent out a portion of it, it’s especially important for you to ask yourself, “How much loss-of-use coverage do I need?” Your Coverage D can help pay for any rental income you lose if the home becomes uninhabitable as a result of a covered peril. If you rely on that rental income, don’t skimp on this portion of your policy.
Sometimes, you can’t live in your home even if it’s inhabitable. For example, a local, state or federal mandate might require that you evacuate. If that evacuation is tied to a peril covered in your policy, your loss-of-use coverage can kick in to help while you’re prohibited from using your home.
Remember the basics
Loss-of-use coverage helps pay for additional living expenses and the loss of rental income if you and/or your tenant can’t live there because repairs are necessary after a covered peril or use of the home is prohibited.
How does loss-of-use coverage work?
Most homeowners insurance policies cap your Coverage D payout at a percentage (usually 10–30 percent) of Coverage A, or the amount of dwelling insurance you have for the structure of your house. So if you have $300,000 of dwelling insurance outlined in Coverage A and 20 percent Coverage D, you’ll get $60,000 of loss-of-use coverage. You’ll have to pay for any expenses more than that amount
Insurers handle loss-of-use coverage differently. Some might offer you an unlimited amount of ALE coverage for a set period of time (e.g., one month) or a set amount of ALE reimbursement per period (e.g., month, year) indefinitely. Review your policy to find out how much protection you have and how it works with your specific insurance carrier.
Loss-of-use coverage for renters insurance works just like loss-of-use coverage for homeowners insurance, except that renters obviously aren’t eligible for any loss of rental income reimbursements.
How do I get reimbursed for additional living expenses?
Whether you need to call on the loss-of-use coverage in homeowners insurance or renters insurance, you’re going to have to go through the claim-filing process.
- Contact your insurer. As soon as you’re safe from the covered peril, get in touch with your insurance provider. It can help you start your claim, getting the ball rolling on not just your loss-of-use coverage, but also your dwelling and personal property coverage so you can start rebuilding and replacing your damaged items. When you talk to your insurer, ask them how you should file your ALE with them. Many insurers have an online platform to make it easy for you.
- Save your receipts. When you file your loss-of-use claim, you’ll need to be able to prove your ALE to your insurer. Whether you book a hotel room, pay for a load of laundry at a laundromat or buy a parking stall near your temporary rental apartment, keep your receipts. If you’re not sure if an expense qualifies as ALE, ask your agent — but save your receipt until you know for sure.
- Pay your deductible (maybe). Some policies require you to pay your deductible before your ALE coverage will kick in, but many don’t. Review your policy to be sure. You don’t want to be waiting around for a check from your insurer not knowing it won’t come until you write them a check for your deductible. You will need to pay your deductible for your dwelling or personal property coverage to kick in.
- File your expenses on the right timeline. Most insurers have you file your expenses for a once-a-month ALE reimbursement. Stay on top of submitting your receipts so you can get paid as quickly as possible.
- Give your insurer any requested information. Some insurers will ask for your normal living expenses to compare against your ALE. For example, say you spend $400 a month on groceries normally, but that cost bumps to $500 while you’re displaced. Your insurer will pay out the difference ($100), not the full $500. Be ready to answer any questions they have so your reimbursement doesn’t get delayed.
Loss-of-use coverage is designed to cover your ALE if you can’t use your house after a covered peril. Save your receipts so your insurance provider can reimburse you for those extra costs as quickly as possible.