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Loss of Use

Reviewed by Stefan Tirschler

Noun

loss of use | lôs,läs əv yo͞os

Definition: Insurance coverage that covers the increase in an insured’s living expenses when their home can’t be occupied due to damage from an insured loss.

After the house fire, their loss of use coverage paid for their motel room.

What is loss of use in home insurance?

In home insurance, loss of use coverage protects you when you suddenly can’t use your property after it’s been damaged in an insured loss. The most common loss of use coverage in home insurance is Additional Living Expenses (ALE). Some policies also refer to loss of use as Coverage D.

ALE helps you pay the added expenses that come up when your home becomes uninhabitable due to an insured loss (a loss covered by your policy). ALE also kicks in if a civil authority orders you to evacuate, and the threat is something that your policy would normally cover.

Example

Rhonda and James are neighbours. Rhonda’s home insurance policy covers overland flooding, but James’ policy does not. During severe spring flooding, a civil authority orders them to evacuate their homes. Fortunately, neither of their homes gets damaged by the flood, but they have to be away for ten days before they can return.

Rhonda makes a claim with her insurance company to cover her hotel and meal expenses for those ten days. She can do this even though the flood didn’t damage her home, because her policy covers overland flooding.

James can’t make an Additional Living Expenses claim because his policy excludes flood coverage. He has to pay for his hotel and meals out of his pocket.

ALE only covers increases in your living expenses. If you’re a homeowner, ALE could pay for a hotel room while your home gets repaired, but it won’t take over your mortgage payments. If you’re a renter, ALE coverage only covers accommodation expenses above your normal rent payments. In any case, you’re still responsible for paying your deductible before coverage kicks in.

The expenses you incur under ALE also must be reasonable. No insurance policy will pay to put you up in a 5-star hotel while your house gets rebuilt. ALE coverage includes extra meal expenses, but that doesn’t mean your insurer will pay for you to eat steak and lobster every night.

If you’re a homeowner, you can continue claiming ALE until your home is livable again, or until you reach the limit of coverage on your policy. If you’re a renter, you can continue claiming ALE until your home is livable again, or for the reasonable amount of time it takes for you to permanently relocate to a new home.

Here are some examples of expenses that loss of use coverage would help you pay for:

  • Housing. If you need to stay in a hotel or rent a furnished apartment, ALE coverage will pay for the extra expense. If you’re a renter, it will only pay for the part above your normal rent.

  • Residential utility costs. There are often extra expenses associated with suspending, moving, or cancelling utility services. If you’re dealing with extra utility charges after an insured loss, you can claim some of them under loss of use coverage.

  • Temporary storage. If you need to remove some of your stuff while your home gets repaired, you can claim the storage costs under loss of use.

  • Food. Your food costs might increase when you’re stuck away from home, too. If you’re staying in a hotel without a kitchen, ordering food every night gets expensive, fast.

  • Transportation costs. While you’re living in temporary accommodations, you may find that your commute is costing you more than normal, or perhaps you’re having to use taxis or ride shares more frequently than normal. ALE may cover the increased costs.

  • Pet accommodation. If your temporary accommodation doesn’t allow pets, loss of use coverage will pay to put your pet up in a kennel.

If you’re in a situation where you’re going to have to make a claim, make sure to save all your receipts!

What is covered by Additional Living Expenses?

Broadly, there are two situations where ALE coverage applies:

  • Direct damage. The most common use of ALE is to cover your living expenses when your home becomes unfit for living in due to physical damage. For ALE coverage to apply, the damage must come from a peril that your policy normally covers. Fire, for example, is a covered peril in every policy. If fire damages your home, your insurance policy will cover the repairs and your living expenses. Pests, for example, are a commonly excluded peril: if a termite infestation damages your home and you have to vacate while it gets fumigated, most insurance policies would not cover either the damage or the ALE.

  • Civil authority order. If you have to evacuate your home under order of a civil authority, ALE coverage will kick in as long as the cause of the evacuation is something that your policy would cover. If your policy covers fire, evacuations due to a fire would be covered, even if that fire never actually touches your home. If your policy excludes floods, you won’t have coverage for damage or for living expenses. In any case, the evacuation order must be an actual order. Advisories or alerts don’t count; and, if you’re leaving your home voluntarily, ALE coverage won’t respond.

Does loss of use cover lost rental income?

If you’re renting out all or part of your home, you’re bound to lose some rental income while the home is unlivable. Some home insurance policies will reimburse you for that lost income as part of your ALE coverage.

You can also buy landlord’s insurance that includes rental income coverage. Rental income coverage is another loss of use coverage. It will reimburse you for rental income that you lose while your rental suite undergoes repairs.

The important points

  • Loss of use is an insurance coverage that reimburses you for extra expenses you incur because you can’t make use of your property.

  • Additional Living Expenses is the most common loss of use coverage when it comes to home insurance.

  • Rental income coverage is a loss of use coverage that reimburses you for lost rental income, but it’s not a standard coverage on some home insurance policies.

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