What is loss of use coverage?

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    Imagine your home is severely damaged in a windstorm, but your homeowners insurance saves the day by covering repairs. However, what happens in the meantime while construction is underway? As it turns out, homeowners insurance offers a solution for that, too. Loss of use coverage is a portion of your policy that pays for you to live somewhere else until your repairs are finished. 

    But every policy features different rules and limits surrounding loss of use coverage, and failing to understand them could mean you don’t get fully reimbursed for the costs you incur. Here’s everything you need to know about your policy’s additional living expenses coverage.

    How Does Loss of Use Coverage Work?

    If your home is damaged or destroyed, your homeowners insurance covers the cost of repairing or rebuilding it to return it to its former state. But depending on the extent of the damage, you may find that your home is temporarily unlivable, requiring you to stay elsewhere while work is being completed.

    This is where loss of use coverage comes in. If a covered peril causes enough destruction to your home that you need to stay elsewhere, loss of use coverage will help pay for your accommodations and other necessary living expenses.

    What Does Loss of Use Coverage Pay For?

    Loss of use coverage is primarily designed to pay for basic living expenses, like food and accommodations, but you might be surprised at the variety of costs you can claim under this type of coverage, including:

    • Housing such as a hotel or temporary rental property
    • Food from either a restaurant or grocery store
    • Transportation including gas, parking, and public transport
    • Personal items like toiletries and clothing
    • Laundry and dry cleaning
    • Storage of personal items you can’t take with you
    • Boarding fees for pets
    • Moving costs between your home and temporary accommodations
    • Lost rental income if you were renting out the property

    Of course, there’s a limit to the amount your insurer will pay for loss of use, which depends on the company and your specific policy. You can typically expect a limit between 10% and 20% of your dwelling coverage for homeowners insurance. Renters insurance policies typically cover loss of use up to a flat amount of $3,000 to $5,000.

    What Does Loss of Use Coverage Not Cover?

    While loss of use coverage can help pay for a wide variety of expenses, there are also some costs that aren’t included. First and foremost, no living expenses will be covered if the loss resulted from a peril that isn’t covered by your policy. For example, if your home is damaged in a flood and you don’t have flood insurance, you won’t be able to file a claim for loss of use with your homeowners insurance policy.

    You also shouldn’t expect to stay in a luxury hotel or eat in Michelin star restaurants and claim it under loss of use. Most insurers set a limit on what you can spend per day in certain areas, like food and accommodation. Check with your insurance company for a specific list of limits before you start spending money to make sure you don’t pay for anything that won’t be reimbursed.

    How to File a Loss of Use Claim

    1. Contact your insurer: Find out which expenses are covered and up to what limit. Ask about the process for filing a claim.
    2. Record your normal living expenses: Most insurance companies ask you to complete a worksheet detailing your typical expenditures for food, gas, and other necessities. Your insurer will typically reimburse you only for what you spend in excess of this baseline.
    3. Save every receipt: Any time you have to pay for an eligible expense, keep the receipt; you won’t be able to ask for reimbursement without it. Record the date and amount of each purchase in addition to the specific items paid for and the category they fall under.
    4. File your claim: Depending on the company and the amount of time you spend in temporary accommodations, you may be able to submit claims for reimbursement periodically. Otherwise, you’ll be asked to wait until you move back into your home and submit all your expenses at once. Make sure you include all the required documentation to help your insurer process your claim on time.

    Do I Need to Pay a Deductible When I File a Loss of Use Claim?

    Most insurers won’t require you to pay a deductible when you file a claim under loss of use coverage. Since loss of use is almost exclusively used simultaneously with a claim for the damage to your home, you’ll already be paying a deductible for your dwelling and/or personal property coverage.

    Just to be certain, you should double check with your insurance company. Any applicable limits should also be clearly written in your policy documents.

    How Much Loss of Use Coverage Do I Need?

    The amount of loss of use coverage you get is typically determined by the amount of dwelling coverage you have on your home. Assuming a loss of use limit of 20%, for example, you’d get $40,000 in coverage if your home’s structure was insured for $200,000. Keep in mind that this is an overall limit; it doesn’t take specific daily limits into consideration according to what your insurer deems reasonable.

    For most homeowners, a 20% loss of use coverage limit is more than sufficient. However, if loss of use coverage is a priority for you, consider shopping around for a company that includes higher limits with its policies. A handful of insurers, including AIG, even offer unlimited loss of use coverage.

    What Is Additional Living Expenses Insurance?

    Additional living expenses insurance is simply another name for loss of use coverage. Different companies may use either or both terms interchangeably. No matter which name you see in your insurance policy documents, know that each refers to the living expenses you might incur if you can’t stay in your home after a covered loss.

    The Bottom Line

    Loss of use coverage, also known as additional living expenses insurance, is a standard part of most homeowners and renters insurance policies. With this type of coverage, you’ll get help with your living expenses if you need to move out of your home while it’s being rebuilt or repaired. Every insurer sets different rules regarding the amounts and types of expenses that can be claimed under loss of use, so make sure you understand the terms of your policy before you book a hotel.

    Loss of Use FAQ

    About the Authors

    Lisa Melillo is a personal finance writer for Reviews.com. Over the past seven years, she’s covered insurance, travel, and home-related topics for a variety of online publications and businesses.

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