Loss of use insurance, also sometimes called Coverage D, is a coverage part that comes in most standard home insurance policies. It can help pay for the additional living expenses you take on when a covered claim makes your home uninhabitable.
Think about the last time you stayed away from home. Chances are you had to line up a place to stay and pay to eat at restaurants or order takeout. If your trip was long enough, you likely had to handle other necessities, like cleaning your clothes..
That's similar to what happens when you are forced to stay away from home while it's being repaired. Say your home suffers damage from a fire, and you can't live there while repairs are underway. You’re likely going to have some additional costs that go beyond your normal living expenses.
This is exactly what Coverage D is for – the extra expense you end up paying when a covered loss forces you to move out of your home.
What does loss of use cover?
Most homeowners probably associate loss of use coverage with additional living expenses, but it also has a component called “fair rental value.” Let’s take a closer look at each of these.
Additional living expenses coverage (ALE)
When a covered peril makes your home uninhabitable, loss of use coverage can help pay additional living expenses. These are costs above your typical daily living expenses.
Some common examples of ALE that loss of use covers include:
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Renting a place to stay or getting a hotel room.
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Commuting costs.
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Pet boarding.
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Food bills. Storage for your personal belongings.
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Laundry expenses.
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Parking fees.
Your insurance company reimburses for your extra expenses – so save your receipts. Your insurer will need them to determine if coverage applies. Plus, coverage is usually limited to a specific period. The time frame varies by insurer, but it’s typically between 12 and 18 months.
The good news is that the time limit usually doesn’t end with the policy term. That means your coverage continues even after your policy’s expiration date as long as you haven’t reached the end of the time limit.
Fair rental value
If you’re a landlord, then loss of use insurance can provide fair rental value coverage. It helps cover the rental revenue you lose when a covered event makes your investment property uninhabitable.That’s an essential coverage for anyone who leases property to others, even if they’re renting out just a portion of their home.
Like additional living expenses, fair rental coverage typically has a time limit of 12 to 18 months, depending on your insurance provider.
You should also note that fair rental value doesn’t cover your tenant's property or any of their extra expenses. They need a renters insurance policy (aka HO-4 policy) to help with their additional costs.
Civil authority/prohibited use
Civil authority coverage pays for your additional living expenses and fair rental value when a government agency prohibits access to your home because of damage to a neighboring property. It only kicks in if a civil authority requires you to leave your home after your neighbor’s property was directly damaged by a covered peril.
What loss of use insurance doesn't cover?
Loss of use coverage typically won't pay for:
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Your mortgage.
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Loss of rental income beyond the period it takes to repair or rebuild your home.
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Any other expenses that you would have incurred if there wasn’t a loss.
It also won't pay for additional living expenses when your home is made uninhabitable by an event your homeowners insurance policy doesn't cover, like earthquakes or floods.
How much loss of use protection do you need
Most home insurance policies include a reasonable amount of coverage for loss of use, but special circumstances may mean you need more. For example, you might want to increase your loss of use protection if you own a duplex and rent out one of the units.
Loss of use coverage limits
The default amount for loss of use coverage limits is usually around 20% of your dwelling coverage for homeowners. For condo owners, the amount is expressed as a percentage of your personal property coverage.
For more information, go to our article How much homeowners insurance do I need?
How much does loss of use coverage cost?
The cost of loss of use coverage is included in a standard home insurance policy (also called an HO-3 policy) at no extra cost. If you need extra coverage for some reason, you may end up paying a higher premium.
Does loss of use coverage have a deductible?
If you lose the use of your home and need to stay in a hotel, you don’t usually need to pay a separate deductible for your loss of use coverage. However, you need to cover your deductible if your claim also includes damage to your dwelling, other structures, or personal property.
How to get loss of use coverage
Getting loss of use coverage is easy because it typically comes part and parcel with your home insurance. All you have to do is:
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Get quotes from a few home insurance companies.
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Evaluate these offers based on the coverage types included, as well as the available coverage amounts, premiums, and discounts.
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Pick a provider, bind your policy, and pay your premium.
Check out our tips for comparing home insurance quotes.
