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” coverage.
An Overview of ALE
Most homeowner and tenant policies cover policyholders and their household members for the increase in living expenses, aka Additional Living Expenses (ALE). The key word here is increase (additional); you won’t be reimbursed for all of your living expenses, only the ones that are over and above your regular, normal, day to day living expenses.
Most policies are going to define living expenses as accommodation, food and residential utilities; you can claim the increase or additional costs on these items if you have to move out of your house due to an insured peril.
What’s covered under ALE?
There are two situations in which a policy will pay for these increased living expenses:
Direct damage: Your home is unlivable because of direct physical damage due to an insured peril; in other words, your home has sustained actual fire, smoke, water, or earthquake damage that makes it impossible to live in. The cause of the damage that makes your home un-livable must be a covered peril. If something like mold or infestation, which are not insured perils, makes your home un-livable, you would not be covered.You will be able to claim your ALE for the reasonable period of time that it takes to repair the damages and make your home livable again; this is called the “reasonable indemnity period.”
Civil Authority Order: You are not allowed to live in your home because a civil authority has evacuated you, again, because of an insured peril. So, for example, a wildfire is nearing your neighbourhood and the civil authority has ordered everyone in your neighbourhood to leave; or, on a more individual basis, you live in a condo complex and one of your neighbouring units has a fire, and while your unit is undamaged, the civil authority won’t let anyone live in the building until the life safety items have been restored.Some policies limit the civil authority ALE to a set dollar amount or a time period. It’s important that you check your own policy to determine what your specific limit is for civil authority evacuation ALE.
It is important to know that when it comes to being evacuated by a civil authority, aka mass evacuation, an alert does not qualify. Civil authorities often put areas on evacuation notice or alert, and you may decide to leave voluntarily, but if the civil authority has not issued the order for you to go, the increased costs you incur by voluntarily leaving would likely not be covered. Only officially ordered evacuations are covered by ALE. It is also important to note that once the civil authority lifts the order and gives the all clear, the mass evacuation ALE claim will cease, regardless of how long it takes you to return home.
Finally, you will be asked to document your claim, so keep all receipts. Your claims representative will clarify just what you can and cannot claim. Generally speaking, you can only claim the increase in food, accommodations and residential utilities. Your adjuster will invite receipts from you to calculate your reimbursement, which would be subject to your policy deductible.
To clarify further, here is some more information on common topics:
Food: Only the increase is claimable. People have to eat whether they are living in or out of their home, but sometimes living out means there is an increase in cost. For example, the hotel does not have a kitchen, so you are forced to eat out for the duration. When this happens, we determine your average monthly/weekly/daily food cost and deduct that amount from the monthly, weekly, or daily expenditure for food incurred over the course of the reasonable indemnity period.You cannot claim for alcohol or meals for people not living in your household.
Accommodation: The options for accommodation are varied; speak to your adjuster about any ideas you have that would work for you, including living in your own RV. Typically, people either stay with family and friends, in a hotel or arrange for a long-term furnished rental if the indemnity period is going to be several months.When staying with family or friends you receive a daily billeting (room and board) rate for adults and children for any part of a month. When the stay is a month or longer in duration, a monthly rate is negotiated. You don’t receive room and board reimbursements at the same rate we would normally pay a hotel, because family and friends do not incur the same overhead costs and are not in the hospitality business for profit like a hotel. Room and board is payable to the host. If you are staying at a hotel, you receive the room rate, applicable taxes and parking. However, in-room entertainment (movies and games), mini-bar, and long-distance phone charges are not covered. If you are a tenant and you receive a rebate on your rent for the period you are unable to stay in your home, this rebate is deducted from any incurred accommodation costs. In cases where the indemnity period will be several months in duration, many people arrange a long-term furnished rental. Homeowners will be reimbursed the full cost of the monthly rental (or your home insurance provider will pay the rental company directly.) Tenants, however, are encouraged to seek new permanent accommodations and the ALE can be used to pay for your moving costs.
Residential utilities: Sometimes it is necessary to suspend your cable, internet, power, and other utility costs and/or move them to your temporary location for the duration of the indemnity period and then back again. There are costs associated with this, and these costs can be claimed. If in doubt about what qualifies as a residential utility, ask your adjuster.
Frequently asked questions about Additional Living Expenses
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.
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 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.
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 groceries.
“Additional” expenses are increased costs that occur as a direct result of the loss. These might include the cost of your hotel stay or temporary home rental, food, transportations, and boarding expenses at a kennel for your 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, and one or two emergency changes of clothing for you and your children.
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.
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 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.