Loss of Use and Homeowners Insurance
When any kind of natural disaster or major catastrophe hits and damages your property, one of the first things you probably think about – after making sure that everyone is safe, of course, – is where you are going to go, what you are going to do, and how much everything is going to cost.
And even if you have funds set aside for a rainy day, you don’t want to have to empty that account for something that’s out of your control – and you don’t have to if you have an insurance policy that includes loss of use coverage.
If you have a loss of use policy your insurance company may reimburse for things like hotels, restaurant meals, or even the losses incurred if you’re unable to do business as usual if you have rental properties.
Essentially, loss of use insurance will make up the costs you incur due to a major weather event or other disaster on top of your standard living expenses.
Most homeowner’s insurance policies do include coverage for loss of use from property damage due to a natural disaster or other act of God.
When a disaster hits and your property is damaged and you’re unable to inhabit or use it as you normally, this is when loss of use insurance coverage comes into play.
Think about how much it would cost if for some reason you and your family were no longer able to live in your home, at least in the short term.
Temporary housing, additional food and utilities, transportation costs, and more will all increase – but that’s why your homeowners or renters insurance policies should include loss of use coverage, which is meant to cover those additional expenses while you are dealing with the hardship and stress of a catastrophic event.
What is Loss of Use Coverage?
Loss of use homeowner’s insurance is designed to cover your extra expenses during a catastrophe.
Having a loss of use clause means your insurance policy will pay out additional living expenses if you can’t use or inhabit your property as usual.
For example, if you need to stay in a hotel or temporary apartment while your home is being repaired because the property is uninhabitable, then your loss of use insurnance coverage may reimburse you for those expenses.
What many policyholders aren’t aware of is that is loss of use coverage is meant to provide you with a means to “maintain your normal standard of living”, so you may be entitled to more than you think, as long as your policy has the appropriate amount of coverage prior to a disaster or act of God that causes your home to be severely damaged or destroyed.
Rebuilding after a disaster may take a significant amount of time, and that’s where loss of use coverage – sometimes called additional expenses insurance or part D coverage – kicks in to cover these costs if your home is determined uninhabitable as a result of a dangerous event that is covered by your insurance, such as a house fire, hurricane, wind damage to your roof, or similar catastrophe.
Homeowners Insurance – Loss of Use
loss of use home insurance is typically covered under most homeowner’s insurance policies (but as always, check your individual policy before you assume that you’re covered.
The two main elements covered under these policies are additional living expenses (ALE insurance) and lost rental income (if you rent a portion of your property out to others).
Of course, each policy is different so knowing exactly what is included in your particular loss of use coverage is important.
Note that it’s essential to understand that if you rent out your house or a portion of your house, loss of use coverage is especially important because you will be reimbursed for fair rental value or the lost rental income if the rental property becomes a damaged dwelling and uninhabitable due to a natural disaster or major catastrophe.
It’s important to know that most insurance companies do allow you to increase your loss of use limits if you’d like, so if you live somewhere that’s particularly disaster-prone, if you live in a high cost of living area, or you have significant day-to-day expenses.
Depending on the catastrophe or disaster that occurred, you may be able to negotiate with the insurance to get more expenses covered under loss of use insurance.
As always, speak to your public adjuster if you have any questions about your policy – they will help make sure that your additional expenses are covered during a very difficult time.
Loss of Use Coverage and Rental Properties
Loss of use coverage also applies to income from rental properties, if you are a landlord whose rental properties and tenants were affected by a disaster.
Keep in mind that your loss of use coverage renters as a landlord only applies to your loss of rental income, your tenants need their own loss of use renters insurance that includes a loss of use policy.
Loss of use coverage or part D coverage insurance policies are generally limited to a specific time period; the time period depends on the state you live in.
Most states limit loss of use coverage to twelve months, while some states like California have recently bumped up the loss of use insurance coverage limits to 24 months, at least in part due to the fact that it may take a significant amount of time for residents to rebuild in one of the most expensive housing markets in the country.
In some cases, insurance companies will only pay out a certain percentage of the total value of the property.
Be sure you know the time period limits on your loss of use coverage before a disaster strikes, and know what you are entitled to in advance, and of course, your public adjuster can help if you have questions.
Renters Insurance & Loss of Use Coverage
Homeowners insurance policies often include clauses regarding loss of use, but what about if you’re a renter?
Loss of use claims under renter’s insurance policies usually cover the increase in living expenses, which means a renter would be offered the same protection against additional living expenses like temporary housing, transportation, and food costs as homeowner expenses.
If you live in a high cost of living area, it may be a good idea to increase your renters insurance coverage limits since finding temporary housing near your employer or school (or your children’s school) might be more expensive than you’d expect.
Also, keep in mind the time limits on your loss of coverage policy, since it may take a while for your landlords to rebuild or for you to find suitable alternative housing.
When Can You File for Loss of Use Claim?
As a property owner or renter, you typically become entitled to loss of use homeowners insurance coverage when your home is damaged to the extent that it becomes unfit and unsafe to occupy as the result of damage caused by a natural event like fire and smoke, windstorms or tornados, lightning, or related acts of God.
It is important to understand that flooding as well as earthquake and mudslides or “earth movements” are not covered under most homeowner’s policies, be sure to check yours and add additional coverage if need be, because if a given type of event or peril isn’t included in your policy, you most likely won’t be able to make a successful claim.
The “covered perils” that may damage or destroy your property that most policies include under loss of use or part d insurance coverage should be explicitly stated in your policy.
Common covered perils include fire and smoke damage, lightning strikes, wind and wind storms like tornadoes, hurricanes, and hailstorms, explosions, aircraft crashes, and riots, vandalism, theft, and other civil disturbances.
You are also entitled to loss of use coverage under your insurance policy if you are ordered to evacuate your home by a civil or governmental authority, e.g. the fire department, the local police or sheriff’s office, a disaster response team, or similar professionals.
How Are Loss of Use Insurance Coverage Claims Processed?
After the disaster is over and everyone is safe, that’s when it’s time to make your insurance claim. The insurance company will want to assess the damages to your property and determine if your claim will be approved or denied.
This means that inspectors and insurance agents will evaluate your property and determine whether your home is truly uninhabitable and you’re eligible for reimbursement for expenses incurred while you were displaced, or not, meaning your home was safe to occupy.
Sometimes this is obvious; for instance, if the house is burned to the foundation or if the whole property is falling apart and the bathrooms, kitchen, and electricity are non-functional.
Sometimes it’s a gray area and the insurance company may challenge the claim; if there is a roof leak or fire and smoke damage to the walls and cabinets, for example, their inspectors may deem the house safe to occupy and then you may not qualify for loss of use.
If your claim was initially denied, don’t be alarmed – it is possible to appeal. This where the help of a public adjuster is invaluable. They are on your side and can help you navigate the murky waters of making a loss of use claim especially when the property doesn’t initially appear to be a total loss.
What Expenses Are Normally Covered Under Loss of Use?
A wide range of living expenses falls under the “loss of use” umbrella, such as the cost of temporary housing if your home is uninhabitable due to a disaster, moving costs, the credit check fees associated with renting said temporary residence (if applicable), parking fees at your temporary residence (if applicable) and the cost of setting up utilities in your temporary home if you are not staying in a hotel or motel.
The cost of increased mileage or a more expensive commute to your place of employment or school (or your kids’ school) if it’s further away from your temporary housing.
For instance, if the cost of gas for your commute is normally $70 per week but your temporary location increases it to $120, those costs will be covered under loss of use.
Or if you usually spend $700 on groceries for your family each month but without your kitchen and pantry that balloons to $1000, the additional expenses coverage under the loss of use clause in your policy will cover the difference.
Other expenses like increased cell phone and data charges since you lost your home connection as well as the increased cost of meals if you don’t have access to your normal kitchen and pantry and have to rely on restaurants and convenience foods.
Pet boarding fees should also be covered in the event that your pets cannot stay with you, as well as things like laundry expenses.
Think of all the additional expenses you would incur if you didn’t have access to your home and the resources there, and there’s a good chance you may be able to get them reimbursed – just keep good records and keep your receipts!
Again, remember that loss of use is meant to help you and your family maintain a normal standard of living – including the amenities that you are accustomed to within reason – so you might be entitled to a larger payout than you’d expect depending on the size and value of your property and your lifestyle.
What is not typically covered? Your utilities in your permanent home since those costs will not likely be incurred since no one will be living there while the property is being repaired.
Government Intervention, Prohibited Use and Loss of Use Coverage
There have been many natural disasters where the government (both federal and state) has stepped in to help out those are suffering property losses.
The wildfires in California are a good example of when the government has prohibited access to certain areas due to the danger, causing the loss of use of property before the disaster actually strikes.
Prohibited use describes when a government authority denies you permission to access your undamaged home due to damage to surrounding properties or ongoing danger, like in the case of a wildfire.
It can be considered loss of use even if your own property is intact, as long as there is significant damage to neighboring properties. This is generally covered under your loss of use coverage insurance.
What Prohibited Use Coverage Means
For example, if local government authorities force you to flee or restrict you from accessing your (currently intact) home due to spreading wildfires as has been the case in California recently, but your home remains unaffected, then your loss of use coverage would apply due to prohibited use.
In this case you would be able to claim reimbursement for the additional living expenses like temporary housing and such from your insurance company – and this applies even if your home remains intact since you and your family were still displaced, as long as there was physical damage to nearby homes or properties.
Note that while loss of use or part D insurance coverage only offers reimbursement if your home was damaged or destroyed as the result of a disaster or catastrophe that is considered a covered loss, prohibited use due to intervention by governmental authority can be an exception to the rule if you are displaced from your home due to a fire, windstorm, or other significant ongoing peril.
Voluntary Evacuation and Prohibited Use
Note that voluntary evacuation due to a hurricane or tornado is not considered loss of use. Moreover, an order to evacuate would only apply if there is significant physical damage to neighboring homes; if your home was one of the few lucky ones that escaped the path of a tornado in the area.
Also, be aware that earthquake, mudslide, and flood insurance is often excluded from most homeowner’s insurance policies, so loss of use in the event of a flood or earthquake may not be covered unless local government authorities order an evacuation.
As always, if you aren’t sure if you’re covered for these types of natural disasters, check your policy and with your public adjuster and consider purchasing separate insurance policies or all-risk polices if you live in an earthquake zone, floodplain or exceedingly rainy or snowy area.
How to File a Loss of Use Claim
Filing a loss of use claim might seem complicated, but it is easier than you think.
As soon as you are safe after the event that caused the need for the claim occurred, contact your insurance company and begin your claim.
You should always have your insurance policy information readily available in case you need to file a claim immediately, along with contact information for your public adjuster in case you have any questions or difficulties during the process.
If a major disaster occurred in your area, your insurance company should be aware and help to move you through the process as quickly as possible, and you’ll be able to track the status of your claim both online and by calling the company’s hotline(s).
Of course, if you require immediate assistance in the event that you don’t have access to most if any of your resources, the insurance company representative should be able to supply you with an advance against the total amount of your loss of use coverage.
How to Help Your Insurance Company Help You
You can help your insurance company process your claim even more quickly by calculating your normal living expenses (in fact, you can even do this in advance before a catastrophic event occurs if you want to be extra prepared) so that there is a baseline amount for the insurance company to base your loss of use claim against.
Keep receipts, invoices, canceled checks, and anything else that will help you in the future if you ever need to claim loss of use.
That’s because when you submit a loss of use claim, the first thing that your insurance company will do is evaluate the additional living expenses you claimed and determine whether these costs actually exceeded your normal living expenses prior to the disastrous event.
Many insurance firms will request that you provide a baseline of your normal living expenses for them to compare the additional expenses to, which is why you should keep up with these records on a regular basis, even you haven’t experienced a catastrophic loss.
Be sure to scan and upload these records to the cloud and separate hard drives or flash drives, because in the event of a disaster you most likely won’t be able to grab the actual documents.
Experiencing a disaster and being displaced from your home is a traumatic time, so make it easier on yourself by keeping records in advance so that you can prove that you deserve the payout with a minimum amount of stress.
Tracking Your Expenses for a Loss of Use Claim
After establishing the baseline, calculate any additional living expenses that will be incurred due to the disaster, such as the cost of temporary housing, additional transportation to your place of business, additional food and utility expenses.
Be sure to consider the fact that you may not have access to a standard kitchen or pantry supplies, and might be relying more on restaurants and convenience foods, and the fact that you might be using more data due to the loss of your home connection or landline, and anything else that you may require while you’re temporarily displaced.
Once you start spending against your claim (even if you haven’t received your payout yet), be sure to keep all receipts and invoices, and any other records that will support your claim for loss of use support.
Take pictures, scan, or make copies of everything and store the documents in multiple places, and be as meticulous as you can even though times are turbulent and stressful – you’ll thank yourself in the end.
If you have a rental property that was affected by a natural disaster, loss of rental income should be covered under loss of use insurance as well, based on the fair rental value of the property.
This will typically be based on the percentage of the property’s value that you are charging your tenants in rent, which is usually between 0.8% and 1.1% (actual values may vary).
Your loss of use coverage will reimburse you for the months missed in rent while your tenants are not able inhabit the property.
How Much Loss of Use Coverage Is Really Necessary
It all depends on the value of your assets, your location, the number of dependents that you have, and many other factors, including the cost of living in your area.
After all, it will likely to be more expensive to secure temporary housing in a high cost of living area, so you need to make sure your loss of use insurance coverage is adjusted accordingly.
Also, since loss of use coverage is meant to help you maintain your current standard of living, you may want to check and see if the policy you currently have has limits high enough to maintain that standard in your area.
Your insurance company will likely be able to work with you on this and adjust your loss of use limits higher if necessary, although keep in mind this will likely mean higher premiums (but that cost may be worth it, particularly if you live in an area where major disasters like wildfires or hurricanes are a common occurrence).
Why You Should Purchase Your Policy Based on Coverage, Not Cost
What’s more, you should be aware that it is easy and common to purchase an insurance policy based on the actual coverage, not just the cost.
After all, choosing the cheapest policy, as tempting as it may be, may be pennywise and pound-foolish in the long run.
Spending more might be considered an investment in your family’s long-term safety and comfort.
Also, remember that the insurance company is only obligated to pay up the maximum amount stated in your policy declarations, even if you’re not finished completing repairs or rebuilding.
If you are concerned about this, you may want to pay a higher premium up front in order to increase your coverage D loss of use.
You should pay attention to the cost of living in your area, the time limits on the policy and how long it might actually take you to rebuild in the event of a disaster, your current standard of living and how much it would cost to maintain that if you were displaced, and any other factor that might be unique to your situation.
How A Public Adjuster Can Help You Navigate Loss of Coverage Policies
If you are in a situation where you need to file a loss of use claim, you are likely under a lot of stress and the last thing that you want to do is struggle with the insurance company.
Your public adjuster can help to answer your questions, advocate on your behalf with the insurance company, and even help you understand your policy before a disaster occurs.