What Is Loss of Use Coverage?

In the worst-case scenario that you are unable to use your home, loss of use coverage can become essential. If your home is severely damaged by a covered peril like a fire or natural disaster, rendering it uninhabitable, loss of use coverage can help with the costs. 

What is loss of use coverage? While you'll still be faced with questions about where you will stay, how will you cover the additional expenses like temporary housing, food, and other necessities will become less of a burden. Loss of use coverage can provide a lifeline during such challenging times. Read on to understand the pros and cons of this type of insurance coverage, to determine whether it makes sense for you. 

Understanding Loss of Use Coverage

Loss of use coverage is a special type of homeowners insurance or renters policy that covers specific costs related to loss of use of the property, as the name implies. It is typically included within standard homeowners insurance or renters insurance policies.

Loss of use coverage, also known as additional living expenses (ALE) coverage, is a component of homeowners and renters insurance policies designed to reimburse you for the extra costs incurred when you cannot reside in your primary residence due to a covered loss. This coverage helps ensure you can maintain a reasonable standard of living while your home undergoes repairs or rebuilding.

The usual three parts of a loss of use coverage include additional living expenses, fair rental value, and prohibited use. Here is how each affects you:

Additional Living Expenses 

This component covers the increased costs of temporary housing, such as hotel stays, rent for an apartment or house, and even pet boarding fees if your pets cannot stay with you. This is one of the most significant expenses when you are forced to move out of your home. 

Fair Rental Value 

If you are a landlord and your rental property becomes uninhabitable due to a covered loss, fair rental value coverage compensates you for the lost rental income during the repair or rebuilding process. If you are dependent on that rental income to pay a mortgage or for your living expenses, this coverage can be essential. 

Prohibited Use

This part of the coverage applies if a civil authority prohibits you from using your home due to a covered loss, such as a mandatory evacuation order during a natural disaster. It helps cover the additional living expenses you incur in such situations. For example, if you face natural disasters like fires, earthquakes, or hurricanes, this coverage can help you. 

What Expenses Does Loss of Use Cover?

While each policy may have unique limitations, there are general coverage expectations. Loss of use protection aims to cover a wide range of expenses you may incur while temporarily displaced from your home. Note that loss of use coverage will only reimburse you for expenses that are beyond those you would incur if we were living in your home. These include:

• Rent or hotel costs for temporary housing
• Meals and grocery expenses beyond your typical costs
• Moving and storage fees for household items
• Utility bills for your temporary residence
• Laundry and dry cleaning expenses
• Mileage or transportation costs for commuting to work or school (beyond regular costs)
• Pet boarding fees
• Parking fees (related to relocation)
• Relocation and storage of your belongings
• Additional furniture rental costs for your temporary home
• Mileage for visits to your home for your rebuilding efforts, such as furniture and flooring stores.
• Moving costs to get back into your house.

What Is Not Covered?

While loss of use coverage is comprehensive, some expenses and situations may not be covered, including:

• Expenses incurred before the covered loss occurred, including extra parking fees, home repairs, or other ordinary expenses. 
• Costs for home repairs or rebuilding.
• Regular mortgage payments or other preexisting expenses.
• Upgrades or improvements to your temporary housing, beyond basic furnishings.
• Losses not covered by your homeowners or renters' policy, or stated as limitations. 
• Loss of use due to negligence.

How Much Loss of Use Coverage Do You Need?

As a homeowner or renter, determining the appropriate amount of loss of use coverage is crucial to ensure you have adequate protection in case of a covered loss. This will depend on the typical housing costs where you live, and the necessary expenses you might expect in that type of extreme situation. However, the higher the coverage limit, the higher the monthly premiums. 

If you have significant savings, you might not need as much. Keep in mind that loss of use coverage will cover a comparable lifestyle. If you live in a small two-bedroom apartment in Queens, it won't cover the cost of a house in the Hamptons with a pool. 

In most cases, the amount of loss of use coverage listed in a home insurance policy is usually about 20% of your home’s insured value. If your home's full insured value is $300,000, loss of use coverage at 20% would be $60,000.

Some homeowner's policies might state a limit to the maximum coverage period instead of a set dollar amount. Some states also have additional stipulations. For example, in Colorado insurers must cover loss of use for up to 12 months, but give homeowners the option of 24 months' coverage.

In the case of renters insurance, coverage is often limited to a flat amount of a few thousand dollars or a percentage. If you have personal property protection, loss of use coverage is usually a percentage of that policy, such as 40%, of your personal property coverage. If you have $80,000 in personal property coverage, with 40% for loss of use, the coverage would be up to  $32,000.

If you're worried your current policy isn't enough, you can speak with your insurer about the possibility of increasing coverage limits. 

Limits on Loss of Use Coverage

Limits are typically set by policy type. Here's a breakdown of what you need to know based on your home type, and policy. 

Homeowners Policy 

Most homeowners insurance policies provide loss of use coverage equal to 20% of the dwelling coverage limit. In some cases, it may cover up to 30%. For example, if your home is insured for $300,000, your loss of use coverage might be  $60,000, or up to $90,000.

Renters Policy

Renters insurance policies typically offer loss of use coverage equal to 20% to 40% of the personal property coverage limit. If your personal property is insured for $30,000, your loss of use coverage could be around $6,000 to $9,000.

Condominium Policy 

For condominium owners, the loss of use coverage is usually calculated as a percentage of the personal property coverage, similar to renters policies. For example, if your personal property is insured for $100,000, your loss of use coverage could be around $20,000 to $40,000.

Rental Property

If you own a rental property, the loss of use coverage is often based on the fair rental value of the unit, helping you recoup the lost rental income during the repair or rebuilding process. This can be a boom for investors and landlords. 

How to Claim Loss of Use

If you find yourself in a situation where you need to make a loss of use claim, following these steps can help ensure a smooth process:

Document the Damage or Loss

Take photographs and videos of the damage to your home, and create a detailed list of any destroyed or damaged belongings. If you have receipts for damaged items such as computers or furniture, it's worth gathering that documentation as well. 

Notify the Responsible Party or Their Insurance Company of the Loss of Use

If the loss was caused by a third party, such as a contractor or neighbor, inform them and their insurance company about your need for temporary housing and additional living expenses. This can start the process. You should also communicate with your insurer to explain the situation. 

In case it is related to a natural disaster, you can talk to your insurance adjuster about getting a cash advance for anticipated expenses. This is especially useful if you can’t afford to pay for extra expenses and then wait for insurance reimbursement. You can also ask the other parties' insurer for a cash advance. For example, if your clothes and computer were destroyed, you might need to replace some items immediately, as well as secure housing.  

Keep Records and Receipts of Any Incurred Expenses 

Maintain a detailed record of all expenses related to your temporary living situation, including receipts for rent, utilities, and other costs. In some cases, your insurer can help you find appropriate housing. In many cases, insurance companies work with vendors like house rental companies or extended-stay hotels with availability reserved for loss-of-use claims. 

Note that most insurers treat each part of an insurance claim separately, so your loss of use claim cannot be merged with personal property claims. Also note that if your claim doesn't have a maximum coverage limit but instead a time limit, there's no monetary cap. You'll be entitled to a comparable property to your primary residence. 

Follow Up With the Involved Parties

Stay in regular communication with your insurance company or the responsible party's insurance provider to ensure your claim is processed efficiently. Remember to advocate for yourself and double-check coverage to keep the process moving smoothly — and to access coverage when needed. 

Seek Legal Advice if Needed

If you encounter any difficulties or disputes during the claims process, consider consulting with a legal professional who can advocate on your behalf. This is especially true in the case of large claims, or exclusions you weren't aware of. 

You can also consider hiring a public adjuster. The adjuster will work for you to help you navigate the claims process and discover how much you're entitled to, including for loss of use claims.

Compare the Best Homeowner and Rental Insurance Providers 

Homeowners or renter's insurance policies can give you peace of mind. Comparing the best providers can help you save more. Find the best homeowners and rental insurance policies from our trusted providers here:

Safeguarding Your Temporary Living Situation: The Importance of Loss of Use Coverage

Loss of use coverage is an invaluable component of homeowners' and renters' insurance policies, providing financial protection and peace of mind when you are temporarily displaced from your home due to a covered loss. By understanding the scope of this coverage and following the proper claims procedures, you can ensure your additional living expenses are adequately covered, allowing you to maintain a reasonable standard of living until you can safely return to your residence. You can find the best homeowners insurance policies or check out Benzinga's homeowner's insurance calculator to estimate your costs here!

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