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When You Can’t Come Home: What Does “Loss of Use” Coverage Actually Cover?
Your homeowner’s insurance policy will pay to repair damage to your home caused by a
fire, windstorm or other covered cause of loss. But when you and your family incur
expenses for moving out while repairs are made, who picks up the tab?
An often-overlooked but essential function of your homeowner’s policy is “additional
living expenses” (also called “loss of use” or “Part D”) coverage. Additional living
expenses coverage will pay the necessary increase in living expenses required to maintain
your family’s current standard of living while the house is being repaired. Examples of
expenses typically covered include the cost of hotel, food bills in excess of normal
grocery/restaurant bills, cooking supplies and the cost of moving property into storage.
The good news is that payment for these expenses usually does not stop if the policy
expires. Rather, they will continue to pay until the limit is used up, the home is repaired
to a habitable state, or you permanently relocate.
The bad news is that many homeowners erroneously believe that the policy covers 100
percent of additional living expenses until the home is habitable. Realistically, very few
policies do this. In most cases, home insurance companies place a limit or cap on loss-ofuse
payments. For example, many homeowner policies will only offer loss-of-use
coverage as a percentage of the limit of insurance carried on the dwelling; 20 percent is
common. Others may specify a flat dollar amount.
Usually, a covered loss must occur for any insurance dollars to be paid for additional
living expenses. The one exception is if your home is not accessible due to civil authority
or government mandate triggered by nearby damage. For example, in 2009, wildfires in
California triggered mandatory evacuations that prevented tens of thousands of
homeowners from going home. If homes in close proximity to yours are burning, there’s
a chance the government will close roads and/or prevent you from entering your property
even though it has not yet suffered a direct loss. In this situation, additional living
expense payments are often limited to two weeks.
Homeowners who receive additional income by renting a portion of their home should
also pay close attention to the Part D limit. This limit also applies to replacing lost rental
income while the damaged house is being repaired.
Here’s the important question: How do you know if your policy’s Part D limit is
sufficient? The trouble is that important factors are variable. For example, how do you
know how long you will be out of your house? Building codes and permits cause
rebuilding efforts to proceed slowly in many parts of the country. Calling a local building
contractor to gain some idea is a good start but there is no exact prediction.
Further, how do you know what expenses you will incur? According to Hotels.com’s
2009 hotel price index, the average hotel room in the U.S. costs $115 per night! Add this
and other expenses to a lengthy, unpredictable repair schedule and the possibility of
eclipsing your Part D policy limit before your home is habitable could become a serious
problem.
The last thing you want to hear is that your loss-of-use coverage has run out before you
can go home. Fortunately, your Trusted Choice insurance agent understands this
exposure and can help you weigh your options, including those that may increase your
loss-of-use coverage limit. For a thorough review of your homeowner’s policy, call your
Trusted Choice agent today.
source: TrustedChoice.com, November 2009
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