If your home is damaged by fire, water, or another type of insured loss, you may have no choice but to move into a hotel or rental home while repairs are made. If this becomes necessary, the cost of the hotel and other increases in your living expenses can be paid by your “additional living expense” insurance. Below are answers to some of the most common questions relating to additional living expense insurance.
Who’s going to pay the extra expenses?
If you have the right home insurance, including “additional living expense” coverage, your insurance provider will cover additional expenses caused by a covered loss. Insurance providers often have standard processes in place to help you keep track of your expenses while you’re displaced; ask your adjuster if they can provide you with templates or other tools to make recordkeeping easier.
What does “insured peril” mean in relation to additional living expense insurance?
Most home insurance policies today provide comprehensive protection which will cover you for a number of types of loss (or perils), including fire, smoke, windstorm, water, theft, and much more. Comprehensive policies always incorporate a set of exclusions, which describe the types of loss that the policy does not cover. Certain exclusions are common to most insurance providers: for example, almost all Canadian home insurance policies exclude losses caused by landslide, coastal flood, insects or vermin.
When a covered peril causes enough damage to your home to render it temporarily uninhabitable, your insurance will reimburse your additional living expenses, up to the limit on your policy.
Your home hasn’t been damaged, but you’ve been forced to evacuate. Is this covered under additional living expenses?
Most comprehensive policies also include a special provision for mass evacuation. Your policy will specify the criteria that must be met in order to qualify for additional living expenses during a mass evacuation: for example, it will likely require that a civil authority impose an evacuation order upon you as a result of an insured peril covered by your policy. Mass evacuation coverage is only available to you while an evacuation order is in effect; coverage will cease once the civil authority permits you to return home.
If you are subject to an evacuation order, contact your insurance provider as soon as possible to confirm what coverage your policy provides. Most policies limit the amount of money available for additional living expenses during a mass evacuation or specify a maximum number of days that will be covered. Confirming this information early will help you plan in order to avoid running out of coverage.
What types of expenses are considered “additional”?
While your home is being repaired, you will continue to be responsible for your ordinary, ongoing expenses. These might include:
- Mortgage payments;
- Insurance premiums;
- Transportation costs;
- Utilities, like natural gas, internet and cable TV; and,
“Additional” expenses are increased costs that occur as a direct result of the loss. These might include:
- The cost of your hotel stay or rent at a temporary home.
- Increased food expense. Your insurance won’t cover the total cost of food, but it will cover the difference between what you would normally have spent on groceries, and what you had to pay at restaurants. For example: if you ordinarily spend $200 per week on groceries, but your evacuation causes you to eat out at a cost of $300 per week, your insurance will cover the $100 difference.
- Increased transportation costs. Maybe you or your kids normally walked to work or school, but while in the hotel, it becomes necessary to drive or take public transit.
- Boarding expenses at a kennel, if you have a pet.
Keep in mind that insurance policies will only cover the “reasonable and necessary” additional expenses that result from your loss. If in doubt, ask your insurance provider what expenses your policy will cover. Reasonable and necessary emergency expenses usually include:
- Emergency toiletries and medications.
- One or two emergency changes of clothing for you and your children.
Do you have enough additional living expense coverage?
Most traditional policies automatically provide additional living expense insurance in an amount equal to a percentage of your building coverage for house owners or a percentage of your personal property for condo owners and renters. The limit has nothing to do with what your additional living expense is likely to be.
If you own a second home that you could move into or have relatives nearby that you could stay with, you may not have to worry about moving into a hotel. So, why pay extra for protection you don’t need? With Square One home insurance, you have the option of selecting a limit of coverage that’s tailored to your specific needs in the event of a loss.
What if part of the home was rented out?
If your home had a basement suite which you rented out, and the loss was substantial enough to render the suite uninhabitable, you may not receive your regular rent until your tenants can move back in after the repairs are complete. As mentioned above, you’re still responsible for paying your mortgage, but you may temporarily lose your source of important rental income.
To protect you against lost rental income, you should consider purchasing rental income insurance. This is an inexpensive optional coverage available from most insurance providers, but like all insurance, it needs to be purchased before a loss occurs. Talk to your insurance provider to find out if your policy already includes this coverage.
What if you were operating a business from home?
If you were running a business from your home, you might need to rent a studio or office space temporarily. If you are unable to continue your business as a result of the loss, what about your lost income?
As these are business expenses, they’re not covered under “Additional Living Expenses”. Be sure to talk to your insurance agent about obtaining coverage. Some home businesses can be covered by your home insurance policy, while others may require you to purchase a specialized commercial insurance policy. Either way, your insurance provider can provide advice on the right kind of coverage you need to protect your business property and income in the event of a loss.
Suffering a major loss will always be stressful and traumatic. But having the right home insurance can certainly take away some of the worry. For more information on “additional living expense” coverage, or to get a quote on your home insurance, contact Square One at 1.855.331.6933.