What Is Loss of Use Coverage for Homeowners?

Loss of use coverage, also known as Coverage D, reimburses you for temporary living costs after a peril covered by your homeowners insurance leaves your house uninhabitable or otherwise prevents you from returning to your home. It can also make up for lost rent payments if a property you rent out becomes uninhabitable.

Read below to find out what situations this insurance type covers and how much loss of use coverage may be available to you.

Key Takeaways Loss of use coverage provides financial support if your home becomes uninhabitable due to a peril covered by your homeowners insurance policy. Coverage D covers additional living expenses like restaurant meals and hotel stays if you can’t return home because of severe damage to your home, a government order or something physically blocking your way home. Loss of use coverage also includes fair rental value coverage that can reimburse you for lost rent payments while a property you rent out is uninhabitable. Your loss of use coverage limit is usually 20% of your dwelling coverage limit but this can vary depending on your insurer and whether you have a home, renters or condo insurance policy. Standard homeowners policies should provide loss of use coverage after any peril damages the structure of your home as long as the peril isn’t specifically excluded by your policy.

How Does Loss of Use Coverage Work?

Loss of use coverage is one of the six coverage types included in a standard homeowners insurance policy and it covers scenarios that can arise if your home becomes uninhabitable due to a covered peril. An insurance company will likely deem your house uninhabitable if you lose access to running water, heat, electricity or plumbing.^[1]

There are a number of other circumstances that could cause your house to become uninhabitable. For example, if a tree falls onto your house and leaves a gaping hole in the roof above your living room amid a rainy season, you will likely qualify for loss of use coverage.

There are three main categories of coverage included in your loss of use coverage: additional living expenses, fair rental use and prohibited use.

Additional Living Expenses

The primary function of loss of use coverage is to cover additional living expenses that come up if you need to move somewhere else while you wait for your home to be repaired or rebuilt. Depending on your circumstances, your insurance provider may pay for the following expenses after your home becomes uninhabitable:

• Restaurant meals
• Hotel stays
• Furniture rentals
• Laundromat and storage costs
• Pet boarding
• Transportation and parking fees
• Moving costs
• Daycare expenses

Your insurance company will only pay for costs that exceed your typical living expenses.^[2] For example, if you normally spend $1,000 per month on groceries but end up spending $1,500 on restaurant meals after moving to a hotel without a kitchen, your insurance carrier would reimburse you $500. You could also be reimbursed for purchasing extra gasoline if your temporary residence is farther from your place of work than your home was.

Keep in mind that your insurance company will not pay for you to improve your standard of living after a covered loss. For example, if you temporarily move to an apartment that has a kitchen, your insurer may not reimburse you if you still decide to eat out more.

Fair Rental Value

Fair rental value coverage reimburses you for any rent payments you lose after a space you rent out becomes uninhabitable due to a covered loss. This can ensure you don’t lose a steady income stream whether you are a landlord leasing a rental property or simply someone renting out a room in your house.

Prohibited Use

Prohibited use coverage takes care of additional living expenses and fair rental value if you are unable to access your home or rental property due to a government order or physical obstruction. It’s worth noting that prohibited use coverage applies even if your house or rental property has not incurred any significant damage.

For example, if you were forced to evacuate your home before a hurricane hit your city, prohibited use coverage would kick in if your local government restricted anyone from returning to your neighborhood because the hurricane knocked down power lines and left debris scattered throughout the roads.

What Does Loss of Use Cover?

Your home insurance loss of use coverage will provide coverage for additional living expenses, fair rental value and prohibited use after any peril covered by your policy prevents you from staying in your home. The most common events that might severely damage your home and that your insurance company will cover include the following 16 perils.

Fire or lightning	Windstorm or hail
Explosion	Riot or civil commotion
Damage by aircraft	Damage by vehicle
Smoke	Volcanic eruptions
Vandalism or malicious mischief	Theft
Falling objects	Weight of ice, sleet or snow
Water/steam discharge from home systems and appliances	Sudden/accidental tearing, cracking, burning or bulging of home systems
Freezing of home systems	Sudden/accidental power surges

However, a standard HO-3 homeowners insurance policy insures the structure of your home against any peril as long as it isn’t explicitly excluded by the policy. Additional living expenses coverage should also be included in a typical renters insurance or condo insurance policy.

What Isn’t Covered?

Earthquakes and floods are commonly excluded from homeowners insurance, meaning your loss of use coverage won’t kick in after these destroy your home unless you purchase extra coverage. Insurance is also designed to cover sudden and accidental losses, so you may not be covered if your home becomes uninhabitable due to neglect or poor maintenance on your part.

Your insurance company will not cover recurring payments like your mortgage or property taxes, so you will need to continue making these payments even while you are away from your home.

In addition, your loss of use coverage may expire one to two years after your home was damaged, depending on your insurance carrier and the type of policy you have.^[3][4]

Is Loss of Use Coverage Required?

You are not required by law to purchase homeowners insurance but your lender will likely require you to have home insurance while you are paying off your mortgage. Most homeowners policies automatically include loss of use coverage and you may not be able to drop it. As a result, loss of use coverage is effectively required until you have paid off your house.

How Much Loss of Use Coverage Should I Get?

The loss of use coverage limit for a homeowner is usually set at 20% of their dwelling coverage limit.^[2] The exact limits available to you will depend on your insurance company but it will normally be a percentage of your dwelling coverage limit.

Since renters insurance doesn’t include dwelling coverage, a renter’s loss of use coverage will usually be set at a percentage of their personal property coverage. For example, Lemonade sets its loss of use coverage limit for standard renters policies at 30% of the personal property coverage limit with an overall limit of $200,000, while also giving renters the option to increase their limit if they so choose.^[5] Some companies may set the limit for renters at a flat dollar amount instead.

If you have condo insurance, your loss of use coverage limit may be based on your dwelling coverage, your personal property coverage or a combination of the two depending on the state you live in and your insurance provider. For example, condo policies in Wisconsin typically provide up to 40% of your personal property coverage limit for additional living expenses.^[6] Meanwhile, some State Farm policies may provide unlimited loss of use coverage during a limited window of time outlined in your policy.^[7]

When Does Loss of Use Coverage Start?

You may not begin receiving loss of use insurance payouts until you have paid for additional living expenses out of pocket and submitted receipts to your insurance provider. Your insurer may only reimburse you after the fact rather than paying out a loss of use claim up front in order to verify that you are exceeding your normal living expenses.

How Do I File a Loss of Use Coverage Claim?

You can file a homeowners insurance claim through your loss of use coverage by taking the following steps:

1. Call 911 and have the responding officers file a police report if your house was damaged due to a criminal act like vandalism or theft.
2. Notify your insurance company that your house has been damaged and you intend to file a loss of use claim while you wait for your house to be repaired.
3. Carefully document your losses as well as your typical living expenses.
4. Make emergency repairs if necessary to prevent further damage to your home.
5. Inform your mortgage lender about your claim.
6. Gather evidence that the damage was caused by a covered peril to support your claim to your insurance adjuster.
7. Save receipts for your additional living expenses that you can later submit to your insurance company for reimbursement.
8. Track your claim to ensure all relevant paperwork is filled out promptly.