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If a roaring wildfire destroys your home and all your possessions, you might have to pay for a hotel or temporary apartment while your home is being rebuilt. Loss of use coverage helps pay for temporary housing and other expenses — like food and pet boarding — resulting from a “covered peril,” such as a fire, windstorm, or break-in.
Find out how loss of use coverage works and what is (and isn’t) covered:
- What is loss of use coverage?
- How does loss of use coverage work?
- How much loss of use coverage do I need?
- What is covered under loss of use?
- What is not covered under loss of use?
- How to file a loss of use claim
What is loss of use coverage?
Loss of use coverage, also known as additional living expenses (ALE) insurance, or Coverage D, is typically a part of your homeowners or renters insurance policy. It helps pay for temporary living expenses — including hotel stays, moving and storage costs, and restaurant bills — if your home becomes uninhabitable due to damage by a covered loss.
How does loss of use coverage work?
Loss of use coverage covers any additional living expenses that exceed your normal standard of living resulting from a covered loss.
For example, if you normally spend $250 a month on groceries, but dining out is now costing you $300 a month, loss of use coverage would reimburse you for the additional $50.
Loss of use coverage addresses many costs but does come with limitations. It won’t cover certain expenses, such as paying your utilities or your mortgage, that you were already responsible for before the covered loss.
Fair rental value
Fair rental value benefits are also typically provided under loss of use coverage. If you rent out a room in your home, loss of use coverage will reimburse you for income you lost as a result of the room becoming uninhabitable, minus any continuing expenses (such as your mortgage or utility costs).
For example, say your tenant paid you $500 a month to rent out a room in your home, but $100 went to utilities. Fair rental value coverage would compensate you $400 per month.
How much loss of use coverage do I need?
Loss of use coverage is a percentage of your dwelling coverage — typically about 20%. For instance, if your loss of use coverage limit is 20% and your dwelling coverage limit is $300,000, loss of use would cover up to $60,000 in additional living expenses.
Everyone has different coverage needs. When shopping for home insurance policies, consider if this percentage of your dwelling coverage is enough to cover any necessary expenses in the event your home becomes uninhabitable.
Keep in mind, too, that loss of use coverage only includes covered perils. So if you live in a flood zone but don’t have flood insurance and your home floods, your insurer will likely not pay your loss of use claim.
What is covered under loss of use?
Any additional expenses that result from “a reasonable period of lost use” of your personal property may be covered under loss of use. Some of these expenses might include:
- Temporary housing: You’ll be reimbursed for the cost of staying in a hotel, apartment, or rental home that’s comparable in size and value to your current home. Coverage only applies while your house is uninhabitable or while you search for a new home.
- Groceries: If you usually pay $150 a week for groceries, but your grocery bill suddenly increases to $250 while living in a temporary home or apartment, your policy may cover the extra $100.
- Pet boarding: If your dog or cat has to stay at a pet hotel while you wait for your home repairs, you can submit receipts for reimbursement under Coverage D.
- Rental furniture: If you must live in an unfurnished apartment while you’re out of your home, any furniture you need to rent might be covered.
- Moving: Costs related to moving to a temporary home, including storage costs, may be covered under your homeowners insurance policy.
- Transportation costs: If your temporary home is further away from work, forcing you to spend more on fuel while traveling, you can document the difference and submit receipts to your insurance company.
What is not covered under loss of use?
Your house must be uninhabitable due to a covered loss. This may include damage caused by fire, wind, hail, or any other peril covered under your homeowners insurance policy.
Loss of use insurance typically doesn’t include:
- Floods: A standard homeowners insurance policy won’t cover damage from floods. You’ll have to purchase a separate flood insurance policy to protect your property and personal belongings and pay for any additional living expenses resulting from a flood.
- Earthquakes: Standard homeowners policies also don’t cover damage from earthquakes. You’ll need to purchase a separate earthquake insurance policy to pay for any repairs or temporary living expenses as a result of an earthquake.
- A remodel: Your home may be unlivable during an extensive remodel, but loss of use coverage won’t cover any additional living expenses because most homeowners policies don’t cover temporary living arrangements for home improvements.
- Ongoing expenses: Mortgage payments, utilities, cable, streaming services, and any other ongoing expenses aren’t generally covered under loss of use coverage.
- Personal liability: If a guest is injured on your property, loss of use insurance won’t cover their medical expenses. That said, medical payments coverage, which is included in your homeowners insurance policy, likely would.
- Detached structures: Damage to your shed, detached garage, swimming pool, barns or other structures on your property isn’t covered with a standard loss of use policy. However, other structures coverage in your homeowners policy may reimburse you for a portion of these costs.
How to file a loss of use claim
Generally, you’ll need to take these steps to file a loss of use claim:
- Contact your insurance carrier as soon as possible after the covered loss and document the conversation.
- Take photos of the damage (but only if safe).
- Ask your insurer about payment options and how and when you can expect reimbursement for any additional living expenses, lost rental income, transportation, etc.
- Hold onto any receipts or vouchers for out-of-pocket costs you pay while displaced from your home or apartment. Without receipts, your insurer may not reimburse you for your expenses.
- File a claim with your insurer. Insurance companies typically allow you to do this online, by phone, or through their mobile app.
- Upload all of your information. This may include your normal living expenses and what you pay for food, transportation, and utilities.
- Be ready to pay a deductible if required. If you do have a deductible, it will likely be deducted from the amount you receive for your claim.
Disclaimer: All insurance-related services are offered through Young Alfred.