Not many people sit and think about what they would do if a devastating tornado or fire completely demolished their home and left them “homeless.” When the unthinkable happens, Additional Living Expense, an often overlooked coverage that is typically part of a homeowners policy, may prove to be a financial and emotional lifesaver.
Homeowners insurance is an intangible asset that can be difficult to understand – until you really need it! Yet it provides peace of mind should a catastrophe occur. Most homeowners and renters insurance policies include Additional Living Expense (ALE) coverage, which is also known as “loss of use”. This coverage provides reimbursement for extra living expenses while your home is being repaired or rebuilt due to a covered loss.
The intent of ALE coverage is to help you maintain your current standard of living during the rebuilding process. Examples of this coverage would be: (this list is not all-inclusive)
- Cost of a hotel or rental, including a rental deposit
- Storage fees for your belongings
- Furniture rental and kitchen supplies, if needed
- Short-term food expenses (until you locate a place with a kitchen)
- Laundry needs, if your home had a washer and dryer
- Pet boarding costs
- Additional mileage costs associated with employment, schools, church and home repairs
- Moving costs between the rental and the damaged residence
A covered loss must occur for the ALE coverage to apply. This includes, but is not limited to damage caused by: wind, fire, lightning, vandalism, or an explosion. A standard homeowners insurance policy does not cover flood damage, so these living expenses would be out-of-pocket. Remember, ALE coverage is intended to help with additional living expenses, not all living expenses. The coverage pays for expenses that you would not have incurred if the disaster didn’t happen. It doesn’t cover your current mortgage, property taxes or entertainment expenses.
Another thing to be aware of is the policy limit for Additional Living Expense. ALE coverage is usually based on the amount of insurance you carry on your home. It may be capped at a percentage of your dwelling limit, most commonly 20 percent. For example, if your home is insured for $250,000, you could have up to $50,000 for additional living expenses. I also have insurance carriers that limit the amount of coverage to 12 months with no dollar limit. I even have one carrier that includes 24 months of additional living expense with no dollar limit.
Why is it important to know and understand your limit. Real case scenario. We all remember the Los Conchas fire several years ago. Had a client whose home was damaged in the fire. To get to their home you had to go down a forest service road. The forest rangers closed the road for over 6 months if I remember correctly. They couldn’t get an adjuster or contractor to begin anything for that period of time. Finally they opened the road on a limited basis. Rebuilding in a somewhat remote area in Bandelier took forever. They were out of their home for well over 12 months. Thankfully they were insured with an insurance carrier that provided 24 months of additional living expense with no dollar limit. Otherwise they would have been out quite a bit of money paying for their own additional living expenses.
We encourage you to discuss this coverage with your insurance agent. Ultimately, the time to discuss is before a loss occurs.
The coverages described here are in the most general terms, and are subject to the actual policy conditions and exclusions. For actual coverage wording, conditions, and exclusions, refer to the policy or contact your agent.