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What Is Loss of Use Coverage or Coverage D?

A component of every standard homeowners policy, loss-of-use coverage pays for your expenses when your home, condo, townhouse, apartment or mobile home has become uninhabitable as the result of a peril that's within the scope of your policy's coverage. This part of homeowners insurance goes by several names:

  • Loss-of-use coverage

  • Coverage D

  • Additional living expenses insurance

  • ALE, the acronym for "additional living expenses"

Paying for temporary lodgings, food, a longer commute and other expenses can really add up. It's important to have adequate homeowners insurance and be prepared for common hazards that may render your home unlivable. Here's more about loss-of-use coverage and claims.

What Expenses Does a Loss-of-Use Claim Cover?

If you must temporarily relocate because your house has become uninhabitable due to a peril within your policy's scope, additional living expenses coverage will reimburse you for expenses that are over and above your normal, everyday expenses—that is, expenses directly incurred due to the loss event. Here are some examples of ALE coverage:

  • Temporary lodging

  • Moving

  • Storage

  • Furniture rental

  • Internet service

  • Restaurant meals

  • Laundry

  • Longer commute

  • Pet boarding

If you usually spend $300 a week on groceries but your temporary displacement has caused your meal costs to balloon to $400 a week, your ALE coverage will pay you $100 towards that expense.

Every homeowners policy is different, so you should speak with your insurance agent about what your policy covers and doesn't cover and what you can expect from your home insurer when you file a claim.

What Doesn't Loss-of-Use Coverage Insure?

Loss-of-use coverage, or Coverage D, only pays for necessities, not luxuries. If you didn't have internet service before the loss event, Coverage D won't pay for internet service after the loss event. If you temporarily relocate to a rented home with a kitchen, your loss-of-use coverage probably won't pay for restaurant meals.

Loss-of-use coverage pays for necessities, not luxuries.

Also, loss-of-use coverage will not kick in if your home has been made uninhabitable due to maintenance damage or homeowner neglect. So, if a policyholder's house becomes uninhabitable due to, say, a long-standing hoarding issue, it is highly unlikely Coverage D would pay out.

Finally, loss-of-use coverage does not cover damage to your home or personal property. Dwelling coverage pays for damage to your home's structure, and personal property coverage reimburses you for your damaged or stolen personal belongings.

How Do I File a Loss-of-Use Claim?

You can file a loss-of-use claim for additional living expenses after your home has become uninhabitable due to a peril that is covered by your policy. The two most popular kinds of home insurance, HO2 and HO3, differ so make sure to check which perils your policy covers and which coverages are listed on your declarations page.

You can only file a loss-of-use claim when your home has become uninhabitable due to a named peril.

After you file an ALE claim, your insurance company will investigate and assess the damage, then mail you an initial check and, later, a second check for the full settlement. The full, final ALE settlement will be affected by the scope and limits of your homeowners policy, so it's important to know the difference between an HO2 and an HO3 homeowners insurance policy.

Do HO2 and HO3 Policies Cover the Same Perils?

HO2 and HO3 policies both offer loss-of-use coverage, but the perils they recognize vary: HO3 policies cover more perils than HO2 policies and cost more.

Both HO2 and HO3 policies cover your home's structure (dwelling), your personal belongings (property), additional living expenses (loss of use), and bodily injury or property damage suffered by visitors (liability).

It's important to note that not all policies cover the same perils.

HO2

Considered to be a basic policy, HO2 provides coverage for 16 perils only. As such, an HO2 policy is considered to be a "named perils" policy. Covered perils or "hazards" include:

  1. Fire or lightning

  2. Windstorm or hail

  3. Explosion

  4. Riot or civil commotion

  5. Damage caused by aircraft

  6. Damage caused by vehicles

  7. Smoke

  8. Vandalism or malicious mischief

  9. Theft

  10. Volcanic eruption

  11. Falling object

  12. Weight of ice, snow or sleet

  13. Accidental discharge or overflow of water or steam from within a plumbing, heating, air-conditioning or automatic fire-protective sprinkler system or from a household appliance.

  14. Sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot-water heating system, an air-conditioning system or an automatic fire-protective system.

  15. Freezing of a plumbing, heating, air-conditioning or automatic fire-protective sprinkler system or of a household appliance.

  16. Sudden and accidental damage from artificially generated electrical current, which does not include the loss to a tube, transistor or similar electronic component.

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Filing a Claim with an HO2 Policy

If your house was made uninhabitable due to one of these specified events, you can file a loss-of-use claim on your HO2 policy. After you speak with your home insurer to make an initial report, you can expect a claims adjuster to investigate the legitimacy and accuracy of the claim, assessing the cause of the event and the livability of your home.

HO3

An HO3 policy, also called an "open perils" or "all perils" policy, provides coverage against all perils except for those named in the policy. While the HO3 is more popular than the HO2, HO3 costs more because it provides more coverage.

While an HO2 policy is strictly limited to its 16 named perils, an HO3 policy is limited by its exceptions. Typical HO3 loss-of-use coverage will pay out when your house has been made uninhabitable by any cause except the following events:

  • Flood

  • Earthquake

  • Landslides, mudslides and sinkholes

  • Pollutants

  • Mold

  • Overflow of sump pump

  • Destruction or confiscation by the government

  • Cracking of pavements, walls, roofs or ceilings

  • Vandalism when a property has been vacant for a specified period of time

  • Freezing, when a property has been vacant for a specified period of time

  • A power interruption caused by an off-the-premises source

  • Collapse, unless caused by a named peril

  • Nuclear accident

  • War

How Much Loss-of-Use Coverage Do I Need?

HO2 and HO3 loss-of-use claims pay out additional living expenses as a percentage of the dwelling coverage limit. That percentage can be as low as 10% and as high as 30%. So, if your dwelling coverage limit is $175,000 and your loss-of-use limit is 20%, your loss-of-use coverage would pay out $35,000.

It is important to remember, too, that most home insurers have a dollar limit and a time limit. So, your ALE coverage will run out when the money or the time runs out, whichever comes first. If you live in California and your house is destroyed by wildfire, your home insurer is required by state law to provide you with no less than 24 months of ALE at the same coverage amount, even if your policy specifies a shorter time limit. In fact, displaced California residents can even apply for a 12-month ALE extension.

Since a homeowner's worst-case scenario is the total destruction of their home, the dollar amount of dwelling coverage is pegged to the cost of a total rebuild. In the same light, you should have enough Coverage D to cover your additional expenses and maintain your standard of living while your house is being rebuilt.

How Do I Get Reimbursed for Additional Living Expenses Using Coverage D?

When you file a Coverage D claim, your insurance carrier will give you a worksheet to document your pre-event expenses and your post-event expenses. So, you will have to keep, organize and safely store all your receipts to justify your claim. Many home insurers offer an app to keep track of your ALE.

If your house has become uninhabitable due to, say, fire, you must make separate dwelling, private property and Coverage D claims; in the same way, you will receive separate checks for each category. For each claim, including Coverage D, you will receive an initial check and, later, a check for the rest of the settlement, according to the Insurance Information Institute. In some cases, you may be offered one check for a full, one time settlement, but you can reject that offer.

Keep, organize and safely store all your receipts to justify your claim amount.

What's more, if your Coverage D claim has been settled but you incur further additional living expenses as a direct result of the disaster, you can ask for further support. But remember: Keep every receipt!

Does Loss-of-Use Coverage Have a Deductible?

A deductible is the amount a policyholder must pay before their insurance policy kicks in. So, if you have a $500 deductible on a successful $5,000 loss-of-use claim, you'll pay the $500 before your insurer pays $4,500. If your policy requires a loss-of-use deductible, you will find that spelled out on your declarations page.

However, not every home insurer requires a deductible—for example, the Liberty Mutual company Safeco is one of several that does not.

Does Coverage D Apply to Other Housing Types?

Yes. Coverage D also applies under certain conditions to suddenly uninhabitable mobile homes (modified HO2), rented houses and apartments (HO4), condos, co-ops and townhouses (HO6) and older homes (HO8).

HO1 coverage only offers dwelling coverage. It does not include Coverage D. However, HO1 is not sold by many insurers in many states. HO1 is often used to protect a vacant house.

Rental Income Reimbursement with Coverage D?

If you are renting out a room in your house, an apartment or another kind of rental property, your homeowners policy will cover any rental income you have lost due to the rented dwelling becoming uninhabitable under your policy's named perils. So, if you were receiving $1,000 a month in rent, you would receive the "fair rental value" of $1,000.

Looking for Cheap Home Insurance with Coverage D?

Also called "loss-of-use" and "additional living expenses"(ALE) coverage, Coverage D pays for expenses incurred if your home is made uninhabitable by a peril that is covered by your homeowners policy. Both HO-2 and HO-3 homeowners insurance policies offer ALE coverage after a covered peril, but the latter covers more perils.

SmartFinancial can help you find the right homeowners insurance policy with ALE coverage. You may also save up to 40% on your coverage by comparison shopping. Enter your zip code below or call 855-214-2291 for a free quote.

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