Additional living expenses: what loss of use coverage pays

Additional living expense coverage, often shortened to ALE and also called loss of use, pays the extra cost of living somewhere else while covered damage keeps you out of your home. It pays the increase over your normal costs, not all of your costs, and it ends at a dollar limit, a time limit or both.

What is additional living expense coverage?

It is a part of a home insurance policy. The NAIC, the association of state insurance regulators, says most homeowners policies will pay the additional expenses you have if you cannot stay in your home because of damage from a covered disaster. The Texas Department of Insurance says most home, renters and condo policies pay some of these costs.

Two conditions matter:

• The home was damaged. Texas regulators say a power outage with no damage to the home does not trigger the coverage.
• The cause is one your policy covers. The NAIC’s home insurance guide gives the example of an earthquake. If your policy does not cover earthquakes, it will not pay for loss of use after one.

Flood is the common gap. The Texas Department of Insurance says most home policies do not cover flood damage, and that National Flood Insurance Program policies do not pay additional living expenses. See flood insurance claims.

What does it usually pay for?

The test United Policyholders, a consumer nonprofit, suggests is one question: did I have this expense because of the loss? Rent on a temporary home passes. The mortgage on the damaged home does not, because you would owe it anyway.

The left column comes from the NAIC, the California Department of Insurance and United Policyholders. Your policy decides what counts for you.

Only the added part of a cost counts. As an example, if you normally spend $200 a week on groceries and now spend $350 on meals because you have no kitchen, the added cost is $150.

On housing, the NAIC says not to expect the insurer to pay for a five-star resort. At the other end, United Policyholders’ advice collected from past disaster survivors is to rent a home comparable to the one you lost, not something far smaller. Survivors on that page have also been repaid for smaller items, such as utility set-up fees at the temporary home and the cost of moving back, though it notes insurers may not agree on every item.

How much will it pay, and for how long?

Up to the limit in your policy. The NAIC says some policies have a dollar limit and some also have a time limit. These limits are separate from the money to repair the home and replace your belongings.

• Dollar limits. The NAIC’s home insurance guide says the loss of use limit is usually a set percentage of your dwelling coverage, and lists 20 percent as typical. The Texas Department of Insurance says most policies there pay 10 to 20 percent of what the house is insured for. On a house insured for $200,000, 10 percent is $20,000.
• Time limits. Texas regulators say policies usually pay for up to 12 months, or until the dollar limit is used.
• Where to find yours. The limit is on your declarations page, the page of the policy that lists your coverage amounts.

California has its own floor. After a covered loss in a declared state of emergency, the time to collect cannot be less than 24 months, with up to 12 more months if you meet delays outside your control (Cal. Ins. Code § 2060). The California Department of Insurance points out that this extends the time, not the dollar amount. Rules differ by state, and the California page has more.

Compare the limit with how long repairs will take. United Policyholders says most people need at least 18 to 24 months to repair or rebuild after a large loss. If you reach the limit first, Texas regulators say you pay the rest yourself.

How do I get paid?

United Policyholders says these benefits are generally paid as reimbursement. You pay, send in receipts and get repaid. Two things can ease that:

• You can ask for an advance. United Policyholders says so, and the California Department of Insurance says insurers usually advance money for these costs. Advances count toward your final settlement. In California, after a total loss in a declared state of emergency, the insurer must advance at least four months of living expenses if you ask (Cal. Ins. Code § 2061).
• This money often comes first. The NAIC says a claim is paid in several payments, and that you will likely get a living expense payment before the payments for belongings and repairs.

Some insurers will pay another way. One survivor quoted by United Policyholders had a policy that paid the rental value of the destroyed home as a lump sum. Insurers handle this differently, so it is worth asking.

How should I keep receipts?

Keep all of them. The NAIC, the Maryland Insurance Administration and the Texas and California insurance departments all say the insurer will need receipts to repay you.

1. Start on day one. The NAIC says to save hotel receipts as soon as you leave the home.
2. Use one card or one bank account for these costs. United Policyholders suggests separate accounts for living expenses, contents and construction money.
3. Write on each receipt what it was for.
4. Keep a record of your normal monthly costs, since the claim is for the amount above them.
5. Keep a copy of everything you send to the insurer.

Our guide to documenting property damage covers the rest of the claim file.

How do I make the limit last?

United Policyholders advises moving to a fully equipped home as soon as you can, so the money goes to rent and not to restaurant meals. Its survivors’ page notes that a furnished apartment rented by the month costs far less than daily hotel rates.

If repairs are delayed for reasons outside your control and the coverage is about to run out, United Policyholders suggests asking for an extension in writing. If the insurer says no, one option is to file a complaint with your state insurance department. The claim clock shows the deadlines your insurer has to meet in your state.

What should I ask my insurer?

The first two questions come from the Maryland Insurance Administration.

• What does my policy cover under additional living expenses?
• Is there a dollar limit, a time limit or both?
• Can you send me a written list of the items you commonly cover? California law requires insurers to give one to a homeowner who claims these expenses.
• Can I have an advance, and how much?
• What do you count as my normal costs?
• How do I send receipts, and how often will you pay?
• If I stay with relatives or in another home I own, is anything payable?
• How do I ask for an extension if repairs run long?

Ask early. You can raise these when you file the claim.

Does a public adjuster’s fee apply to this money?

It depends on the contract and the state. In Florida, a public adjuster’s fee may not be based on additional living expense payments unless you agree to that in a separate agreement (Fla. Stat. § 626.854). Elsewhere, you can read the fee section before you sign and ask for these payments to be left out of the fee. See what a public adjuster contract must say.