Loss of use coverage is an important component of your homeowners insurance policy. This coverage enables you to live somewhere temporarily and pay for certain expenses if your home is unexpectedly destroyed or damaged to the point of being uninhabitable.

Loss of use coverage is also known as additional living expenses (ALE) coverage or Coverage D, and like other coverages, it has some limits you should be aware of when considering this insurance.

What is loss of use coverage?

Loss of use coverage typically pays for hotel stays, restaurant meals, and other necessary expenses you incur while you’re unable to live in your home. In most cases, your insurance company will begin paying once it determines your home is unlivable.

Most insurance policies include loss of use coverage.

It’s important to note, though, that your loss of use coverage will only provide support if your insurer deems your home unlivable due to a covered peril. For example, if your home sustains water damage from a sudden pipe burst or a lightning strike, your loss of use coverage will cover your expenses. But this coverage won’t provide support if you need to leave your home because of an event your insurer doesn’t cover, such as flooding or an earthquake.

How loss of use coverage works

Your insurer will grant a claim under loss of use coverage only if the damage to your home meets specifically outlined criteria. The criteria of what your insurer’s loss of use coverage does and doesn’t cover will be outlined in your policy.

Your policy will also outline the limits of your loss of use coverage. In most cases, these limits equate to a percentage of your dwelling coverage limit, like 20%, for example. In this case, if your dwelling coverage limit was $300,000, your loss of use coverage limit would be $60,000.

If you rent or own a condo, such losses could also fall under the personal property limit of your insurance policy instead of loss of use coverage.

Types of loss of use coverage

Three main types of loss of use coverage are available: additional living expenses, actual loss sustained, and fair rental value coverage.

• Additional living expenses: This type of coverage can pay for several different services that you might need if you can’t live in your home. For example, it might cover hotel costs, food, laundry services, dog boarding, and more.

• Actual loss sustained: Your insurance company might not compensate you for every single purchase you make while your home is uninhabitable. For example, your insurer may only compensate you for the amount you typically spend on groceries and not fund any spending beyond that figure.

• Fair rental value coverage: If you have a rental property that’s damaged, this type of coverage will compensate you for the loss of income if your renters have to live elsewhere for a period of time.

What does ALE insurance cover?

Loss of use coverage typically pays for the following living expenses up to a certain amount listed in your policy:

• Living expenses, such as a hotel or a rental, that you have to live in while your home is uninhabitable

• Food costs so you can purchase meals while you’re away from home

• Transportation costs that cover travel to wherever you have to relocate temporarily

What does loss of use coverage exclude?

It’s important to know what your insurance policy will and won’t cover when it comes to unexpected repairs, especially because some policies only pay for loss of use coverage under certain conditions.

Some policies might not pay for loss of use coverage in the event of a tropical storm or flooding. Additionally, time limits and financial limits are often part of your policy. Your insurance company also won’t pay for expenses you were already responsible for, like day care and your regular food costs.

Factors that affect loss of use coverage

Many different factors affect the price of your overall home insurance policy, including your policy limits, your deductible, and your home’s location. The type of damage you sustain and what your policy covers specifically affect your loss of use coverage, and the rental costs in the area will also affect your replacement cost estimates.

Here are a few key points to know about your policy as a whole:

• Your policy limit is the most amount of money your insurance company will pay when you make a claim.

• Your deductible is the amount of money you have to pay out of pocket before your insurance company starts paying for repairs.

• The location of your home matters because some homes are in areas affected by natural disasters or crime. This influences the price of your policy.

• The type of damage your home sustains is relevant, as some home insurance policies only apply to certain types of perils.

• Rental costs in the area might affect your loss of use coverage, depending on how expensive homes are to rent.

How much loss of use coverage do you need?

Follow these steps to determine how much loss of use coverage you actually need:

How to file a loss of use claim

If you need to file a loss of use claim, follow these steps:

1. Contact your insurer as soon as possible after your home is damaged or destroyed. Keep all records of your calls with the insurance company to stay organized.

2. Document your losses in detail. Write down personal items you’ve lost and out-of-pocket expenses you’ve paid for, including rental cars, food, and hotel room stays.

3. File a claim with your insurance company online, on the app, over the phone, or in person at the office.

4. Work with an adjuster as they assess your claim, view the damage, and potentially ask you for more documentation, if necessary. Your adjuster and your insurance company will inform you of next steps, including when you’ll be compensated if your claim is approved.

Loss of use coverage FAQs