What is loss of use coverage?
- Loss of use insurance is a type of insurance that covers additional living expenses, loss of rental income, and prohibited use of your home.
- It will only be enacted if your home suffers damage due to a covered peril.
- Keep all your receipts to increase your chances of being reimbursed for loss of use
Home insurance covers your home, personal property and liability expenses if you are sued. But if your home is damaged and temporarily uninhabitable, you will need accommodation while repairs are being made. Additional living expenses, like hotel stays and restaurant bills, can add up. Loss of use insurance is available to cover all expenses related to alternative living.
What is the loss of use guarantee?
Suppose your house becomes temporarily uninhabitable due to damage. In this case,
offers loss of use to help cover relocation costs and other temporary living expenses. While “loss of use” and “additional living expense” are often used interchangeably, they are not the same thing. Coverage for additional living expenses is only a fraction of your cover for loss of use.
There are three parts to loss of use:
- Additional living expenses: Additional living expenses insurance covers “any necessary increase in living expenses incurred by the insured to enable the household to maintain its normal standard of living,” says Mario Iveljic, founder of Mag Mile Law and licensed insurance broker at Power Risk Management and Insurance in Chicago. . Loss of use will reimburse you for additional expenses your insurer wouldn’t normally cover if you were living in your home, according to Iveljic. For example, if you usually spend $200 a month on food, but are now spending $400 because you can’t cook and have to eat out more often, your provider will reimburse you for the extra $200. Some examples of costs eligible for reimbursement include expenses related to public transportation, pet boarding, groceries and dining, moving expenses, household goods storage expenses, and parking.
- Fair rental value: If you have a tenant in your home and a listed peril damages the room you are renting, fair rental value coverage will compensate you for the loss of rental income.
- Prohibited use: If your accommodation is not accessible due to damage caused by neighboring premises by a covered peril, or if the government prevents you from using your property, loss of use will result in additional living expenses or reimbursements of fair rental value up to two weeks, according to Iiveljic.
What does the loss of use warranty cover?
Your home insurance policy provides coverage against loss of use if your home is uninhabitable due to a covered loss. Here are several risks that a standard home insurance policy typically includes:
- hail, wind, lightning
- Damage caused by a falling tree
Note that how you receive compensation for “loss of use” varies depending on your provider. Some carriers reimburse you for temporary accommodation, while others have a list of alternative accommodations.
If you plan to leave your damaged home, first call your insurance agent to determine if they will compensate you for temporary living expenses based on your situation. It is important not to assume that you will receive an additional living expense payment, as what is considered an “uninhabitable” home will vary depending on the provider.
What does the loss of use warranty not cover?
Loss of use won’t cover expenses you were paying before the damage, such as your mortgage, property taxes and property insurance, according to Iveljic. You can only use loss of use if you can no longer live in your home due to a peril listed in your policy. Here are some damages that loss of use does not cover:
How much loss of use coverage do you need?
According to the Insurance Information Institute, the amount of coverage varies depending on your insurance company. Some providers may offer unlimited coverage for a certain period of time, while others only have limits.
As a general rule, the amount of your protection against loss of use is automatically set at 20% of the insured value of your home. For example, if your coverage amount is $250,000, your loss of use coverage amount will be $50,000. You can increase your coverage by purchasing additional loss of use insurance.
Unlike home insurance, you don’t have to pay a deductible to receive loss of use compensation.
How to file a claim for loss of use
- Contact the insurance company: Inform your damage insurance company and find out about the stipulations for receiving compensation for additional living expenses. Each insurance company has different protocols on how they distribute payments.
- Determine your usual living expenses: Consider keeping a record via bank statements or receipts of your normal living expenses even before you incur a loss. Your insurer will usually ask you to complete an application detailing your average monthly expenses for essential expenses. Calculate what that budget is before filing a claim.
- Keep all receipts: Keep receipts related to additional living expenses. Usually, your insurer will reimburse you for additional living expenses rather than paying you upfront. “If you can’t prove what your expenses would have been without a claim and what they do following a claim, it will be difficult to convince the insurer to reimburse you for your additional expenses,” says Iveljic.
- Start the claims process: File a claim with your insurance company and upload your receipts. Your insurance company will compare your post-loss living expenses with your pre-loss living expenses to determine if your expenses exceed your average living budget and if an expense is deemed “necessary” and “essential.”