When most of us think of homeowners insurance, we think about getting coverage for major home repairs — the big-ticket items the insurance company can pay out for in the event of a loss or damage. We’re talking about things like a tree falling over in a storm and wrecking your roof or a robber making off with your electronics and jewelry.
Sure, you need that kind of protection, but your homeowner’s insurance policy should also include a very important kind of coverage beyond that: loss of use coverage. This is also sometimes known as additional living expenses (ALE) coverage or Part D coverage. Loss of use coverage is an important part of your home insurance (and some rental insurance policies) that kicks in when your home is rendered uninhabitable. Let’s say in the example above, where your roof needs major repair work. You may not be able to live in your home while this is underway. Since you have “lost the use” of your typical living space, the policy will help you pay for lodging and other expenses.
Read on to learn more about the loss of use coverage, including coverage limits and policy conditions. It’s an important consideration if a worst-case scenario ever happens to your home sweet home.
What Does Loss of Use Coverage Mean?
Loss of use coverage is the part of your homeowner’s insurance policy that covers the costs you’ll incur if you lose the usage of your home.
For example, if a fire destroys a significant portion of your house and it needs to be rebuilt, your typical home insurance policy will cover the cost of repairs. But (and this is a biggie) you may find yourself suddenly facing a whole lot of living expenses you otherwise wouldn’t. Hotel rooms and restaurant meals can add up quickly, and without your own kitchen and bedroom to cook in and retire to, you’d be pretty much forced to take advantage of these expensive options. Or perhaps you have to put your possessions in storage as your home is rebuilt, or even rent an apartment. These are the kinds of expenses that loss of use coverage will typically reimburse.
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Like most other forms of insurance, loss of use coverage does come with certain limits — you don’t have carte blanche to go out and stay at a swanky hotel for months and eat exclusively Wagyu beef on the insurance company’s dime.
Generally, loss of use insurance is calculated and expressed as a percentage of your dwelling coverage limit — the amount of money up to which the insurer will pay out to repair or rebuild your home in the event of a qualified loss.
For example, if your dwelling insurance limit is $350,000, and your loss of use coverage is 20%, you’d have up to $70,000 to put toward living expenses during the time your home is being repaired. That may sound like a lot of money, but you’re likely to face a lot of expenses, especially since you’ll still be responsible, during that time, for paying your mortgage, insurance premiums, and other normal monthly bills.
Loss of use coverage is most commonly between 20% and 30% of the dwelling coverage limit, but it is possible to find plans with a higher loss of use limit — or a lower one.
In fact, although loss of use coverage is fairly standard, it is possible to purchase a homeowners or renters insurance policy that doesn’t include it, so always be sure to read your paperwork in full, including the fine print, to ensure you know what you’re getting.
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Loss of use coverage is subject to additional conditions along with the coverage limit. For example, you’ll most likely be asked to prove your expenses to the insurance company in order to get the claim paid — so be sure to keep the receipts for all those hotel-room breakfasts!
Your policy may include other terms and conditions as well. Yet again, another good reason to get nice and cozy with that fine print.
Which Living Expenses Are Covered By Loss of Use Insurance?
Although the loss of use insurance covers many different kinds of living expenses while your home is being rebuilt or repaired, it doesn’t cover everything.
Once again, the only place to get verified information about what your specific policy covers is — you guessed it — your specific policy paperwork, but here are some of the most common covered costs.
• Temporary housing, such as hotels, motels, or a temporary apartment
• Public transportation
• Grocery and restaurant bills beyond your typical expenditure
• Storage costs
• Costs to board a pet
• Laundry costs
• Parking fees
Once again, refer to your policy documentation in order to confirm which expenses are covered under your plan.
What Else Does Your Home Insurance Cover?
Loss of use coverage is only one small part of your overall homeowner’s insurance policy, which likely has several different coverages built in. A standard homeowners insurance policy offers coverage in the following categories:
• Dwelling coverage, which covers the cost of repairing or rebuilding your house up to the given limit
• Personal property coverage, which covers the costs of replacing your belongings in the event they are stolen, lost or damaged as part of a covered event
• Personal liability coverage, which pays out to cover the medical or legal expenses you might incur if someone is accidentally hurt on your property (for example, if they’re bitten by your dog)
• Additional coverages, such as coverage for additional structures on the property, specific damaging events (or “perils”) that aren’t listed in the standard policy, excess coverage for expensive belongings, etc.
As you can see, homeowners insurance is about way more than insuring the four walls of your home, though it should cover that, too. Keep in mind that each of these coverages comes with its own limits and policy conditions. (We’d remind you to read the fine print again, but at this point, you’ve probably got it. Right?)
In addition, homeowners insurance generally involves — as do most forms of insurance — paying a deductible when it comes time to file a claim. That means you’ll be responsible for a certain out-of-pocket cost to cover even coverage-eligible sustained damages, although the insurance company will likely pay out significantly more. (For example, a homeowners insurance deductible might be $1,000, which isn’t nothing… but is a lot better than paying $30,000 out of pocket to replace your entire roof. In this instance, you’d pay $1,000 while the insurer would pay $29,000.)
Deductibles are charged in addition to the premiums you pay on a monthly, quarterly, or annual basis simply to keep the insurance policy active. (Typically, the higher the deductible, the lower the premium, and vice versa.) Again, it may feel like a pain to have to pay so much money simply to have insurance just in case something happens, at which point you’d have to pay out your deductible as well… but for most of us, our homes are the single largest purchase we ever make and the biggest asset to our names. It’s an investment worth protecting, especially when you consider the often astronomical cost of even basic home repairs.
Loss of use insurance is a type of coverage baked into most homeowners and many renters’ insurance policies. This coverage pays out toward the extra living expenses you’ll incur if your home is rendered uninhabitable by a qualified loss, such as the cost of hotel rooms, additional food expenses, pet boarding, and public transportation.
While homeowners insurance is a valuable financial tool, it’s not the only one to keep in your tool belt. If you have family members and loved ones who rely on your income in order to maintain their lifestyle and comfort, life insurance can be a great way to ensure your death is primarily an emotional, rather than financial, loss.
SoFi has teamed up with Ladder to offer high-quality life insurance plans that are quick to set up and easy to understand, and our overall policy limits go up to $8 million. You can get a decision in minutes today, right from the comfort of your home — which, after all, already has its own insurance policy. (Right?)
Photo credit: iStock/Ridofranz
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