What Is Loss of Use Coverage?

ByJulija A.
January 06, 2022

Insurance is one of the best ways to gain peace of mind against certain kinds of accidents and other unpleasant situations. For example, we’ll buy insurance for our electronic devices, cars, and even our house.

That way, if something were to happen to our possessions (or possibly our health), we can at least get some kind of compensation to help us deal with the situation.

For example, let’s imagine that your home suffered major damage due to something like a heavy storm or a fire. Most home insurance policies would cover the costs of repairing your home and even help pay for your damaged belongings.

However, if your home is badly damaged and uninhabitable, you won’t be able to live in your home while those repairs are going on. Instead, you’ll likely have to stay somewhere else, even if it’ll cost money.

Thankfully, these extra costs may be covered by loss of use coverage in your homeowner’s insurance policy. So in this article, we’re going to explain a little more about what this type of coverage is.

home insurance living room

What Is Loss of Use in Home Insurance?

This type of home insurance coverage is often known as “Coverage D loss of use” or “loss of use insurance.” It has a number of different labels, but they effectively mean the same thing. The following definition covers it nicely: “a part of your homeowner’s insurance policy that covers living expenses as a result of your home being uninhabitable.”

But what counts as your home being uninhabitable? Everything rests on this definition. If your insurance company doesn’t agree that your home is uninhabitable, they may flat-out refuse your loss of use claim.

In order to define your home as uninhabitable, the damage must first be covered by your homeowner’s insurance or renter’s insurance. This means your home must have suffered from a covered peril. Peril, in this case, means the cause of damage to your home.

This includes things such as fire, storm, snow or lightning damage, or even vandalism. As long as your home is covered by the peril that caused the damage, you will likely be eligible for loss of use coverage.

It’s essential to pay attention to the covered perils and the terms and conditions set by your homeowner’s insurance policy. For instance, fire is typically covered by homeowner’s insurance and will entitle you to loss of use insurance.

However, flooding is generally excluded by homeowners’ and renter’s insurance policies and is not always considered a covered peril.

Renters Insurance

Renters insurance will likely cover loss of use if you’re renting a property. However, it’s still important to look at the terms and conditions of your insurance policy to ensure that you’re getting the projection that you expect.

Fair Rental Value

If the damaged home is not your primary residence, you may be able to claim Fair Rental Value. This occurs if the home that was damaged is uninhabitable. You’ll typically receive coverage for the rental income you will miss until the house becomes habitable again.

What’s Covered By Loss of Use Insurance?

As mentioned above, fair rental value coverage is usually a form of coverage that ensures that you continue to receive some of the rent that you would’ve from your tenant. But what else is covered by loss of use insurance for homeowners?

  • Additional living expenses coverage (also known as ALE insurance) can reimburse homeowners for extra living expenses that occur as a result of living away from their home. You will only get funds up to your coverage limit, though.
  • Cell phone usage can be paid out, too, if you’re unable to access your landline connection.
  • You may be covered for driving long distances from your temporary place of residence to reach work.
  • If your meals have increased in cost, this can also be covered.
  • Utility set up at your temporary home may also incur extra costs, which will be covered by loss of use insurance.

In short, if there’s something that you need to pay for as a result of losing your home to an accident or disaster, then it’s likely covered by your insurer, and you shouldn’t need to worry. However, it’s always worth double-checking their policies to see if there are any clauses or limitations that you should know about.

What Isn’t Covered?

As mentioned previously, flooding is typically not covered by loss of use protection. This type of insurance also cannot cover any expenses that you had to cover before losing your home. That means that you’ll still need to pay your mortgage and other insurance fees even while you’re living in temporary accommodation.

What’s Considered a Living Expense?

We mentioned that additional living expenses could be covered by a loss of use claim, but what exactly does this include?

In most situations, temporary housing is the highest of all additional expenses. It could be paying for a hotel, it could mean renting another apartment, or it might involve staying at a motel. Whatever the situation is, you’ll be reimbursed for the stay.

However, a living expense also includes the cost of moving and storing items. If you have to rent a van or hire a moving service to get your belongings from your previous home to your temporary home, coverage will apply.

Lastly, excessive bills due to a covered loss can also be covered by your policy. This includes, but is not limited to, considerations like clothing, groceries, utilities, car mileage, pet boarding, and so on. Remember that while your policy will cover the differences in these expenses (if they are present), there is still a cap on how much you will receive in your claim.

Loss of Use Coverage in Auto Insurance

As you may have guessed, loss of use coverage isn’t always tied to homeowners and their properties. Such coverage will apply for most insurance policies where losing access to something can end up costing the owner money in the long run. A great example of this would be auto insurance.

Imagine this; your vehicle has broken down due to an accident and needs repairs. However, because you cannot use your car to get to work, it’s considered a loss of use, and assuming your auto insurance policy covers it, there are ways to help you get back on the road.

In most cases, this would mean that your insurer pays the rental value for a vehicle that you use while your primary vehicle is being repaired.

There are obviously some restrictions to be aware of. For example, you won’t be able to rent a car that is twice or thrice the value of your existing one. Instead, you’ll need to choose a similar vehicle, or your insurer will not accept your loss of use claim. As such, your loss of use coverage for a rental car will most likely be the same vehicle or one with very similar specifications.

Conclusion

In short, loss of use coverage typically only applies when you have an insurance policy for something and have made an actual claim. If the thing you have insured is essential to your daily life, but you cannot access it, then there’s a chance that your policy may include a loss of use clause that will help you pay for additional expenses.

While it’s mainly spoken about in the context of homeowners insurance, it can also apply to vehicles and other belongings.

Q&As

What is the meaning of loss of use?

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Loss of use means the inability to use something. In the context of this article, it typically refers to the inability to use an automobile or live in your home due to damage caused by the peril covered in your insurance policy.

How is loss of use insurance calculated?

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Loss of use insurance is often calculated based on your dwelling coverage limit. For example, if your dwelling coverage limit is at $300,000, then your loss of use coverage limit will typically be from $60,000 to $90,000.

What is considered uninhabitable for insurance?

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Most insurance policies will define that a property is uninhabitable if it has been majorly damaged by a covered peril. In this case, peril refers to a source of damage such as fire, weather, or a storm that caused your home to be damaged. As long as your insurance policy covers this peril and your home has suffered major damage, it will likely be considered uninhabitable.

Is there a deductible for loss of use?

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There’s a chance that you may need to pay a deductible on parts of your loss of use insurance claim. Your homeowner’s insurance provider should be able to explain this in much greater detail. If you’re interested in the exact values or want to ensure that you have this coverage on your policy, then it’s best to speak directly to your chosen insurance company.

What is covered under loss of use coverage?

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  • Temporary expenses such as housing, renting, or even using a hotel
  • Costs of public transportation or rental fees for a car to help you commute
  • Boarding pets that cannot live with you in your temporary accommodation
  • Extra food expenses that may occur as a result of your circumstances or location.

It’s worth mentioning that flood damage is typically not covered by loss of use.

About author

Albert Einstein is said to have identified compound interest as mankind’s greatest invention. That story’s probably apocryphal, but it conveys a deep truth about the power of fiscal policy to change the world along with our daily lives. Civilization became possible only when Sumerians of the Bronze Age invented money. Today, economic issues influence every aspect of daily life. My job at Fortunly is an opportunity to analyze government policies and banking practices, sharing the results of my research in articles that can help you make better, smarter decisions for yourself and your family.

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