Coverage D: Loss of Use / Additional Living Expense

Loss of Use, or sometimes called  Additional Living Expense, is an important coverage included in your homeowners insurance policy, but it is also part of mobile home insurance, condo insurance, & renters insurance.

Imagine you come home from work to find your home uninhabitable due to a house fire. Or maybe it was the house or apartment nearby having a fire, and civil authorities prohibit you from living in your home for the next several days until it is safe for you to live there.

Where do you stay for the night? You can’t use the food in your refrigerator to prepare the meal you intended to eat, so now you have to pay for another meal? Do you have the cash or credit on you to keep from going hungry and homeless for the night?

It could take months before your home is habitable again. The costs of moving, storing your personal property, and paying for a new place to live, while you wait for the repairs to your damaged home to be completed, can be substantial.

Loss of Use coverage pays for your additional living expenses you incur due to a covered claim, so you can maintain your normal standard of living.

This coverage is another reason for tenants, whom think they don’t own enough valuable property to need renters insurance, to buy it.

If you live paycheck to paycheck, the additional costs to pay for a place in the short term, and the additional expenses to find a new place to live, is money some people don’t have. Don’t rely on charity if this happens to you, since renters insurance usually can be purchased for less than $10 a month.

If you have auto insurance, the discounts for buying renters insurance and auto insurance together can be the same as the cost of your auto insurance alone, without renters insurance.

Suddenly having nowhere to stay for the night, because you did not have renters insurance when you needed it, and later finding out you could have had it, at little to no additional expense, makes people feel ripped off by their insurance company’s failure to help them buy the insurance policies they need.

Loss of Use / Additional Living Expense coverage is automatically included in most property policies, like homeowners, condo, mobile home, & renters insurance, as well as dwelling policies for rental units, where it may cover the loss of the rental’s fair rental value.

However, the dollar amount of coverage and time limit, as well as what is covered, vary from insurance company to insurance company, without any options for the customer to purchase additional Loss of Use coverage. If you need better Loss of Use coverage, you will need to change insurance companies.

You want to consider how an insurance company’s Loss of Use coverage works, in addition to its other coverage, price, customer service, and complaint record, when selecting an insurance company.

Some homeowner insurance companies offer as little as a separate 20% of the amount for which your house is insured, and some companies offer as much as a separate 100% of the amount for which your home is insured, or no dollar limit at all. Time limits can vary, too. Additional living expenses may no longer be paid after a year or two years.

More coverage is always better, but I would only consider it when the homeowners insurance company has a competitive price, or outstanding customer service.

However, look for an homeowners insurance policy covering these three things:

1. Additional Living Expense: temporary housing, moving,  storage, & other necessary expenses to maintain your normal standard of living.

2. Prohibited Use: If a civil authority does not allow you to occupy your home, due to damage to a neighboring home, from a cause which would be covered to your home.

Prohibited Use usually does not cover the additional living expenses due to an order to evacuate.

For example, you are told to leave your home due to an approaching wildfire. But if the wildfire damages your neighborhood after the evacuation, and civil authorities will not allow you to return to your home due to this damage, it should be covered under prohibited use.

3. Fair Rental Value: This is very important if you rent out part of your home, or if you are insuring a property you rent to others.

You get the fair rental value of the rent you were receiving, but any expenses not continuing due to the property damage, such as utility costs, are subtracted from the fair rental value.

For example, you rent a room in your home to someone for $400 a month. Your boarder’s share of the utilities, included in the rent, is $50 a month. If you have a fire, and your boarder cannot live in your home, you would get $350 a month for fair rental value.

You are not reimbursed for the loss or breaking of a lease or rental agreement.

For example, your home is repaired, but your old boarder moved elsewhere. It takes you 3 months after your home is habitable to find another boarder. You are not paid for the 3 months it took you to find a new boarder. If you did not have a boarder at the time of a loss, even though you were looking for one, there would be nothing paid for Fair Rental Value.

For there to be coverage under Loss of Use, your house must be uninhabitable due to a covered claim.

For example, flood and earthquake are not covered by your homeowners insurance. If your house is uninhabitable due to a flood, no Loss of Use coverage applies. There would be no coverage for an earthquake loss, either, unless you purchased additional earthquake coverage.

Let me walk you through an example of a valid claim:

You have a major house fire and it is determined by the insurance company or civil authority you can’t live in your home. Keep in mind, if you have minor damage, but your home is safe to live in, it is not up to you to decide you need to live elsewhere and get paid additional living expense. You don’t get to stay in a hotel, on the insurance company’s dime, for a few days because your house has a funny smell. But if the smell has an ill affect on you or your family, you may be able to get the claim covered.

If your home is uninhabitable due to the fire, any additional expense to maintain your standard of living, while your home is being repaired, until it is habitable again, subject to any dollar or time limit, is covered.

Additional expenses during the time of any delay of the repair created by you, extending the normal time repairs to your home could be completed, will not be paid.

So, if fire damaged your modest 1,500 sq ft, 2 bed room home, you would receive the cost of the additional expense to rent a comparable home. If you choose to rent a 4,000 square foot luxury home, you will have to pay for the portion of rent beyond the appropriate rent of a home comparable to your damaged home.

It takes 6 months before you can move back into your home. You paid 1,000 a month to rent a comparable home for 6 months. You had additional moving & storage expenses of $5,000.

Your homeowners insurance policy provides a separate 20% of the amount of coverage on your house — $150,000 — so you have a limit of $30,000 for Loss of Use coverage. The time limit covers additional living expenses for up to one year from the date of the loss.

Since $30,000 is more than your $11,000 Loss of Use claim, and all the expenses were incurred before the 1 year time limit was up, the entire claim will be paid.

As always, the information I provide you is to educate you and help you shop smart for insurance. I don’t work for your insurance company or know about your insurance policy,, so I can’t telll you how your insurance works. Check with your agent or insurance company to find out what expenses are covered, what limits apply to your policy, and learn how your Loss of Use coverage works. Be smart and comparison shop with other insurance companies to get the best coverage for you.

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