What is additional living expenses insurance?

14 Sep

Homeowners insurance is a must if you own a home. It helps protect not only the structure of your home but your contents as well. Homeowners insurance also offers protection against liability issues if someone is injured in your home. 

The final piece of homeowners insurance is additional living expenses (ALE), this coverage can be a financial lifesaver but is not always a coverage that is well understood by homeowners which is why we thought we would do a quick overview of additional living expenses coverage.

What is additional living expenses insurance?

If your home is so damaged by a covered peril that you cannot safely stay in it while it is being repaired or rebuilt, additional living expenses coverage will help pay some of the expenses associated with being displaced from your home. 

As an example, if your roof is so damaged that it may collapse you could not safely live in your home. During the time you were out of your home, the costs related to hotel bills, food and other living expenses would be covered by the additional living expenses portion of your homeowners policy. 

The majority of homeowner and renter policies offer additional living expenses coverage but there are policies out there that exclude this coverage. Check your policy for details and ask your agent if you are unsure if your policy includes this coverage as well as the coverage limits if your policy does include additional living expenses. 

What exactly are additional living expenses?

Additional living expenses can cover a broad range of expenses, as long as they are related to the fact that you have been displaced from your home. Always keep a detailed record of your expenses if you are out of your home due to a claim. It can be fairly shocking how expenses add up when you are forced out of your home. 

Here are just a few costs that should be covered by additional living expenses:

Room and Board: This may refer to hotel bills or the cost of renting an apartment or short-term rental. There may be a daily cap on the cost of accommodations, check your policy for details. Your insurer may not be willing to cover the cost of luxury hotels such as the Four Seasons so make sure you understand any policy limits. 

Restaurants: If you are staying in a hotel it may be difficult to make meals so additional living expenses insurance will help cover the cost of meals. 

Laundry: Doing laundry will most likely be difficult if you are out of your home. Your coverage should help pay the bill for laundry and even dry cleaning if you cannot do your own laundry where you are staying. 

Storage: If it is necessary to move items such as furniture or other valuable items into storage so they are not damaged while your home is being repaired or rebuilt, the additional living expenses portion of your policy should cover those costs.

Pet boarding: If you have a pet that is not allowed at the hotel you are staying at you may need to board your pet and these expenses should be covered by the additional living expenses portion of your policy. 

Other expenses: There are numerous items this insurance will cover. It can even help cover the cost of car rentals, mileage if you are driving further to work or school, tools and furniture if it is necessary to rent these items while you are out of your home. 

Remember, your insurer will review all of your receipts to assess whether or not they are necessary and reasonable expenditures. Luxury hotels and meals at five-star restaurants will absolutely be questioned and in many cases, denied. Running up excessive bills can result in denied claims and your being charged with insurance fraud. Always keep your expenses reasonable and comparable to what you had in your home.  

How much additional living expenses coverage should you carry?

There is no easy way to predict how much living expenses insurance you should carry. The severity of the damage to your home can vary dramatically. While some people may only be out for a month, there are people who have been out of their homes for over a year as it is rebuilt after a wildfire or other major disaster. 

Additional living expenses insurance is usually a percentage of your dwelling coverage limits. While it can vary by insurer, 30 percent of your total dwelling coverage is fairly common. As an example, if you are carrying $300,00 0 in coverage on your home, your additional living expenses coverage would be capped at $90,000 (30% of $300,000). While this may seem like quite a bit, it can go faster than you think if you are out of your home for an extended period of time. 

In addition to a cap on coverage, there is often a time limit when it comes to additional living expenses money. Many polices limit it to 12 months but some states, California is an example, require insurers to up that limit to 24 months. Check with your insurance company regarding your coverage limits. 

Frequently asked questions about ALE insurance

Is loss of use coverage the same as additional living expenses?

Yes. Loss of use is just another name for additional living expenses insurance, these names are used interchangeably and will vary by insurer and even by state. 

Is additional living expenses insurance included with most policies?

Yes. Most homeowners insurance policies include some amount of additional living expenses insurance. However, the amount built into your basic homeowner policy may not be enough to cover your needs in case of an emergency. For this reason, it is always good to check how much additional living expenses coverage you have.

Do I need to keep receipts?

Absolutely, your insurance company will not issue payment without receipts. Insurers tend to reimburse your expenses as they occur instead of paying out a lump sum. You will need to provide proof of those expenses with receipts. 

Does ALE cover flood damage?

No, it does not, or any expenses related to a disaster that is not covered by a standard homeowner policy, such as earthquake damage. Most standard homeowner policies do not cover flood damage so if you are out of your home due to flood damage, your expenses will not be covered. 

While some private market flood insurance policies offer ALE coverage, most do not. Policies sold via the National Flood Insurance Program don’t include additional living expenses.

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