Loss of Use coverage. What is it and do I need it?

September 27, 2019
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Loss of Use on a homeowners insurance policy is a standard coverage and is calculated as a percentage of the Coverage A replacement cost coverage (the estimated amount to replace a home destroyed by a covered loss as opposed to the market value which in this area is usually a much higher amount, especially as you get closer to the ocean).

Most companies use 20% in determining Loss of Use coverage. For example, a home with an estimated replacement cost of $500,000 would have Loss of Use coverage of $100,000 though higher amounts can be purchased.

So, what does Loss of Use coverage actually cover?

This assists the homeowner cover any increased living expenses while the home is being rebuilt or restored after a loss or if local authorities don’t allow you back into your home for some reason even though your home is not damaged.

To clarify, Loss of Use coverage will pay the increased living expenses incurred because you cannot live in your house. For example, you may normally spend $300 per month for groceries but now that you are living in the Residence Inn for a few months, you are spending $400 per month dining out. Loss of Use coverage reimburses you the difference between normal living expenses and your actual expenses while living away from home but you can’t go hog-wild. These extra expenses are limited to 

what is deemed to be necessary. A policy may also have strict limitations as to what is “necessary”.  If you are forced out of your tract home in Oceanside, I wouldn’t be booking a suite at the Four Seasons Resort.

Here are some examples of expenses you can expect reimbursement for keeping in mind that only the increased expenses are paid for:

  • Hotel expenses
  • Paying rent on a temporary apartment
  • Additional fuel due to longer commutes
  • Additional food expenses
  • Clothing expenses
  • Storage unit bills
  • Parking costs
  • Boarding a pet

What if I were forced out of my house because of an earthquake?

If you have an earthquake insurance policy, good for you. Earthquake policies also have Loss of Use coverage, just like a homeowners policy does. But if you don’t have an earthquake insurance policy, your homeowners Loss of Use coverage will NOT pay for your increased expenses because earthquake is not a covered loss on a home policy (that’s why they have earthquake insurance policies).

Most earthquake insurance policies have a very basic Loss of Use coverage built into the policy with a small deductible. My recommendation is to increase the Loss of Use coverage on an earthquake policy as much as you can because it costs very little to do so and you don’t want to be more out-of-pocket than what is necessary. 

If you have any questions about this coverage or any other coverage, please feel free to call us at 760-893-8055 or send us an e-mail at info@kenmayinsurance.com.

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