Home Insurance: Loss-of-Use Coverage After Damage

When your home is damaged, you face not only the loss of property but also the challenge of covering your living expenses while waiting for repairs. Luckily, a standard homeowner’s policy includes coverage for “loss of use,” reimbursing you for additional living expenses such as hotel stays during repairs. This coverage, known as “additional living expense,” is designed to help you maintain a comparable standard of living after a covered loss.

A standard homeowner’s policy typically includes three types of loss-of-use coverage: additional living expense, fair rental value, and “civil authority prohibits use.” These coverages are usually subject to a limit equal to 30% of the dwelling limit under homeowner’s insurance. So, if your policy covers the full value of your $300,000 home, it would cover up to $90,000 for loss of use.

Additional living expense coverage pays for your necessary increase in living costs when your home becomes unfit to live in due to a covered cause of loss. For example, if a fire damages your kitchen and two bedrooms, this coverage will pay for the extra amount you must spend to live elsewhere.

The insurance company will only pay for the amount necessary for you to maintain your normal standard of living. For instance, if you were not living in a luxury condo before the loss, the insurer will not pay for you to live in one after.

Loss-of-use coverage covers any necessary expense that exceeds what you normally spend. For example, if you usually spend $500 per month on groceries and, while your home is being repaired, you spend $700 a month dining out, your policy will cover the $200 difference.

Examples of additional living expenses may include hotel or rental home charges, food and utility expenses, and additional car mileage. The insurer will pay for the shortest period necessary to repair or replace the damaged property or to permanently relocate.

Fair rental value coverage applies to homeowners who rent out part or all of the premises. If a covered cause of loss makes the home uninhabitable, the insurance will pay the rental income that the homeowner loses. Coverage lasts only for the shortest time necessary to repair or replace the premises.

Civil authority prohibits use coverage applies when authorities require people to evacuate their homes due to a disaster. This insurance pays for the increased cost of living elsewhere for up to two weeks when authorities prohibit homeowners from using their residences due to damage to neighboring premises caused by a covered peril.

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