What is the Loss of Use Coverage? Why is it in my Homeowner’s/Renter’s policy and what all does it cover?
In your Homeowner’s or Renter’s policy, there is a coverage for Loss of Use (Coverage D). The Loss of Use Coverage pays your additional expenses when a covered loss happens at your home that makes it uninhabitable, or when one of the covered perils happens somewhere else and it causes your home to become uninhabitable. It is an added benefit in your policy, helping you maintain your normal standard of living after a loss.
The first part of your Loss of Use coverage is for your additional living expenses due to a covered loss. The covered loss could happen at your home or someone else’s, but if your home becomes uninhabitable, the additional living expense coverage will pay.
The second part of the coverage is for fair rental value. If you rent out part of your home and a covered loss makes your home uninhabitable, this part of the Loss of Use Coverage will pay you back for the missing rent(s) you would normally receive. This coverage part has an exception, as it will not pay for any expenses due to the cancellation of a lease or agreement.
The third and final part of the Loss of Use Coverage is for civil authority prohibiting use. An easy example would be a fire in an apartment building. Say the neighboring unit to yours catches fire, yet your unit is completely untouched. Despite this, the whole floor is deemed ‘unsafe’ by the Fire Marshal and you are forced out of your unit until further notice. The extra expenses for food, a hotel room, etc. are all covered. This part of the Loss of Use Coverage only lasts two weeks, however.
Things to Consider:
- Each part of the Loss of Use Coverage is subject to covered losses. This means that the only things you will have coverage for are the perils you are insured against. So, the broader your coverage, the better your chance you’ll be able to collect Loss of Use money.
- Each part of the Loss of Use Coverage has a capped limit on what it will pay. The amount of coverage is usually 30% of the Dwelling amount (Coverage A). So if there are extra expenses over that, you will have to pay out-of-pocket.
- Additional living expenses and fair rental value are both limited to the shortest amount of time it takes to return to the home/find a new home. So if you intentionally delay the repair process, you will be expected to pay for the additional time spent.
- Any payments made are only for additional costs of living, so if you normally have total monthly expenses of $1,000, only living expenses over that $1,000 will be covered.
- An endorsed policy may pay for Loss of Use on an Actual Loss Sustained (ALS) basis. With ALS, there is no limit to the amount you can collect under any of the parts of the Loss of Use Coverage. The only caveats to this is that you are still only covered for the shortest amount of time it takes to get you back into your home/into a new home, and the ALS payments will only continue for 12 months after the Loss of Use Coverage was triggered.
- Determining how to preserve your ‘standard of living’ includes many things, such as the quality and type of meals, extra mileage, extra pet expenses, finding a proper quality and square-footage of the temporary residence, and much more is taken into account.
- The exact amount the Loss of Use Coverage pays is often hard to accurately determine, as exemplified by the previous note. Being hard to determine, settlements often come down to trust and goodwill of the insurer. Having a quality insurer with a highly rated claim-support history is the key to getting a fair amount for your extra costs.