What is Loss of Use Coverage?

It’s interesting that when most people talk about homeowners’ insurance, they understand the coverage on their home and they understand the coverage on their personal property but when you bring up loss of use coverage, the conversation turns into a question and answer period, and that’s okay.

Most homeowners are not aware of the loss of use benefit (coverage D) until they experience an event that forces them to move from their home temporarily. Hopefully, for the benefit of the consumer, every agent discusses loss of use coverage even when they know that the customer is likely to forget about in a day or two.

The purpose of this article is to highlight Coverage D (loss of use) in your homeowners’ or renters’ policy so you can take advantage of this benefit if an event forces you out of your home or apartment. Here, we’ll answer that question: What is Loss of Use Coverage?

What does Loss of Use Cover?

Loss of use coverage (also known as additional living expenses) covers certain expenses when you or you and your family are forced to relocate because your home or apartment is uninhabitable because of a covered peril.

For example, if you have a fire in your home and the smoke and water damage makes your home or apartment uninhabitable, your insurance policy will cover your relocation expenses (up to a defined limit) because the fire is a covered peril under your homeowners’ or renters’ insurance policy.

On the other hand, if you are forced to leave your home or apartment because of a roach infestation and you can’t stay there while the during the extermination process, your insurance will not cover your hotel expenses or the extermination costs because most homeowners’ or renters’ policies do not cover pests.

Here is the actual language that is in your homeowners’ policy regarding Coverage D – Loss of Use

You will also receive Loss of Use benefits if you happen to be renting an area of your residence out to a third-party and they must relocate temporarily because of a covered peril.

What kinds of expenses are covered under Loss of Use?

The expenses you will be reimbursed for are any expenses that you incur that are considered “additional living expenses” to live similarly to how you were living before the covered loss that caused you to relocate.

• Costs for a temporary residence such as a hotel, motel, apartment or rental home.
• Your moving costs if you have to hire a mover to transport personal property to the temporary residence or put in storage.
• Excess of normal restaurant or grocery bills
• The costs of storing household items in a storage facility
• Laundry expenses
• Parking fees
• Costs if you have to board your pet(s)

Certainly, there will be circumstances not mentioned here when your insurer may have to pay other expenses. For example, if you were forced to relocate a substantially longer distance from where you work, your insurer would likely pick up the costs for additional transportation expenses.

Is there a limit on Loss of Use Coverage?

Yes, there is a limit on how much your insurer will pay for your loss of use claim. The limit will be specified within your policy and on your declarations page (summary of coverages).

Most HO3 (standard) homeowners’ policy set the loss of use limit at 20% of Coverage A (your dwelling coverage). This means if your home is insured for $425,000, your loss of use limit would be $85,000. You should also find out if there is a time limit on how long the insurer will pay for loss of use expenses. Ordinarily, the insurance company will pay loss of use expenses until the contractor has notified them that your residence is safe to live in.

It’s important to note that “safe to live in” is not the same as “completed repairs.” For example, if a contractor had to rebuild a portion of your home, you’ll likely have to move back in before the exterior of the home has been repainted (safe to live in but not complete).

Can the Company control what I spend money on?

Yes, the company can control what you spend the money on. Your loss of use benefits are designed to make you and your family whole again while you are being forced to temporarily relocate. The fact that your policy will pay up to 20% of your dwelling coverage does not mean that your claim will be worth that much.

Your expenditures should be considered necessary to restoring you to your usual standard of living. For example, if your home is a typical 3/2 neighborhood home, don’t expect your insurance company to pay for you and your family to stay at the Ritz Carlton until your home is repaired. Additionally, your company will want documented proof (receipts) for what you spent and where you spent it.

And by the way, they will not cut you a check for the maximum benefit in advance.

What if the Loss of Use Limit is not High Enough?

High-income earners and high net worth families typically reside in expensive homes which are typically insured under an HO5 homeowners’ insurance form rather than an HO3 (standard) insurance form. With this type of policy, you will likely not be limited on loss of use expenses.

Companies like Chubb and Travelers (and others) have specialty homeowners’ insurance for very large and high-value homes.

Frequently asked Questions

How much loss of use coverage do I need?

Insurance companies that offer property and casualty insurance have determined over time that claims for additional living expenses (loss of use) are typically 20% or less of the dwelling coverage amount.

Will loss of use pay for additional transportation expense?

Additional transportation expenses are covered if you have to temporarily relocate to a residence that is a greater distance to your workplace. Be prepared to prove the amount of your claim is reasonable.