Understanding Loss of Use Coverage in Homeowners Insurance

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Updated: May 22, 2024

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Loss of use coverage, also known as coverage D, is a crucial aspect of home insurance that kicks in when your home becomes uninhabitable due to insured perils, like fires or storms. It covers the extra costs incurred, such as hotel stays and meals, ensuring you maintain a similar standard of living while your home is rebuilt or repaired. This coverage, which compensates for additional expenses and loss of rental income, acts as a financial safety net.

Key Takeaways

Loss of use coverage provides financial aid for additional living expenses when your home becomes uninhabitable due to covered perils.

It encompasses two components: additional expenses and loss of rental income, cushioning both homeowners and landlords.

Prompt action thorough documentation and adherence to the claims process is essential for successfully claiming these benefits.

What Is Loss of Use Coverage in Home Insurance?

Loss of use coverage, or coverage D, is an aspect of home insurance that covers expenses incurred when your home becomes uninhabitable due to insured perils, paying for things like temporary housing and additional food costs. For example, if a severe storm causes a tree to fall on your roof, rendering your home uninhabitable, loss of use coverage would reimburse you for the costs associated with living elsewhere while repairs are carried out.

There are two key components of loss of use coverage: additional expenses and loss of rental income.

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    Additional Expenses

    Loss of use takes care of additional expenses you incur while your home is being restored or reconstructed following a covered loss. For instance, should a natural disaster like a tornado or hurricane severely damage your home, this coverage reimburses expenses incurred during the period your home is being repaired, like hotel bills and food costs.

    Here's a breakdown of the expenses typically covered:

    • Hotel or rental accommodation costs
    • Additional food expenses, over and above what you would typically spend
    • Storage fees for personal belongings
    • Laundry expenses
    • Extra transportation costs incurred due to the temporary relocation
    • Pet boarding fees if your temporary home cannot accommodate pets
    • Other living costs that are over and above average house expenses

    These covered costs are meant to help you maintain your usual standard of living when you're displaced from your home due to covered perils such as fire, windstorms or other insured disasters.

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    Loss of Rental Income

    Under loss of use coverage, the loss of rental income aspect in home insurance is a provision that compensates you for the rental income lost when a rented property becomes uninhabitable due to a covered peril such as fire, wind or hail. This coverage mitigates the financial impact of a covered event and ensures a continuous income stream.

    For instance, if you rent out your home for $1,000 a month and a severe storm damages it, making it unlivable, your loss of rental income coverage would reimburse you for the lost rental income during the restoration period. This is often up to a specified limit or specified duration.

Limits of Loss of Use Coverage

In home insurance, loss of use coverage limits are typically expressed as a percentage of your dwelling coverage limit, ranging between 10% and 30%. Dwelling coverage is the part of your policy that pays to replace your home, so these limits are often $100,000 or more.

To give you an idea of how much your loss of use coverage might be worth: if your dwelling coverage limit is $200,000 and your policy sets the loss of use coverage limit at 20%, you'd be entitled to up to $40,000 for additional living expenses such as hotel stays, restaurant bills and other related costs while your home is being repaired or rebuilt.

Defining When a Home Is Uninhabitable

A home is categorized as uninhabitable when it becomes unfit for living. While the specifics of what constitutes an uninhabitable home may vary depending on the insurance company and policy, insurers typically look at the following before deeming it uninhabitable:

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    Health or Safety Concerns

    Conditions that pose a direct threat to your health or safety. This can include a missing roof or gas leaks.

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    Lack of Essential Utilities

    Absence of utilities like electricity, heat, running water and sanitary facilities.

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    Structural Damage

    Significant damage to the structure that makes it unsafe to live in.

If your home is deemed uninhabitable because of damages caused by one of the covered perils below, you'll be able to utilize your loss of use coverage.

Covered Perils for Loss of Use Claims

Covered perils under loss of use claims typically include events like fire, windstorms, vandalism and lightning strikes that cause significant damage, rendering your home uninhabitable. Below is a snapshot of some common covered perils under home insurance:

  • Fire: Causes severe damage, often making a home uninhabitable.
  • Windstorms: Can cause structural damage or remove essential parts of the home, like the roof.
  • Vandalism: Extensive damage due to vandalism can render a home unsafe.
  • Lightning Strikes: May cause fires or structural damage.
  • Water Damage: From internal issues like burst pipes, not flooding.
  • Vehicle Collision: When a vehicle collides with your home, causing significant damage.
  • Explosion: Causing structural damage or creating hazardous conditions.
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Understanding the typical covered perils under loss of use claims is crucial, as it allows you to utilize this coverage effectively. It's advisable to review your policy or consult with your insurance representative to ensure you have the necessary protection in place.

How to Claim Loss of Use Benefits

If your home is deemed uninhabitable, it’s important to know how to claim your loss of use benefits. Fortunately, filing a claim for loss of use benefits is a structured process that helps you get the financial assistance you need. Below is an overview of the steps you need to take to claim your loss of use benefits.

Contact Your Provider

Notify your insurance company about the damage as soon as possible.

Document Damage

Take photos and videos of the damage to your property and any affected belongings.

Keep Receipts

Maintain a record of all additional living expenses incurred, like hotel bills and extra food costs.

Fill Out Claim Forms

Complete any claim forms provided by your insurance company detailing the loss and additional expenses incurred.

Initiate an Adjuster Inspection

Allow the insurance adjuster to inspect the damage to ascertain the extent of loss.

Submit Claims

Submit your claim and all necessary documentation to your insurance company.

Follow Up

Stay in regular contact with your insurance representative to track the progress of your claim.

Filing a loss of use claim is a meticulous process that demands prompt action and thorough documentation. By understanding and following the steps outlined, you position yourself for a smoother claims process, ensuring you receive the necessary support to maintain your standard of living while your home is being restored.

About Mark Fitzpatrick

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Mark Fitzpatrick has analyzed the property and casualty insurance market for over five years, conducting original research and creating personalized content for every kind of buyer. Currently, he leads P&C insurance content production at MoneyGeek. Fitzpatrick has been quoted in several insurance-related publications, including CNBC, NBC News and Mashable.

Fitzpatrick earned a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He is passionate about using his knowledge of economics and insurance to bring transparency around financial topics and help others feel confident in their money moves.