Loss of Use Coverage (Coverage D) in Homeowners Insurance
Key Takeaways
- Coverage D may cover temporary housing and living expenses if your house is inhabitable.
- Loss of use coverage includes both housing expenses and additional living expenses.
- Additional living expenses include everything from moving and storage expenses to additional food and transportation costs.
- Be sure to shop around to get the ideal insurance protection you and your family need.
Imagine you have a house fire, and the damage is extensive. Your homeowners insurance will likely cover the repair costs and the cost of replacing your belongings. But what happens if the damage is so extensive you can’t stay in your home? The costs of staying at a hotel for a few days or even a few weeks can add up quickly. This is the exact reason many homeowners insurance policies include loss of use coverage, also referred to as Coverage D. This type of coverage can provide temporary housing and living expenses while your home is being repaired.
This article takes a closer look at Coverage D, how it works, and why it’s so important.
What Is Loss of Use Coverage?
Loss of use coverage, also referred to as Coverage D, is an essential part of most homeowners insurance policies. The coverage only kicks in if your home incurs extensive damage that makes it impossible or unsafe for you to continue living in your home. It covers temporary housing and living expenses while your home is being repaired.
Property and casualty insurance expert Kristopher Kane explains the versatility of this type of coverage:
Expert Take
Whether it’s a fire, storm damage, or some covered claim that prevents you from living in your home safely and comfortably, loss of use coverage can make a tremendous difference in the lives of affected homeowners.
How Does Loss of Use Coverage Work?
Before you can receive payments from the insurance company for Coverage D, a named peril must have caused extensive damage to your home. Common named perils covered under many homeowners insurance policies include:
- Damages from vehicles or aircraft
- Explosions
- Falling objects
- Fire and smoke
- Lightning
- Riot or civil commotion
- Theft
- Vandalism or malicious mischief
- Weight of ice, snow, or sleet
- Windstorms or hail
Your Coverage D policy may also kick in if a government agency has forbidden you from entering your home. For instance, if the government issues a mandatory evacuation during a hurricane or wildfire, your insurance company may compensate you for your housing and living expenses while you can’t be in your home.
Other events, such as earthquakes and floods, are often excluded from homeowners insurance coverage. If you live in an area that is high risk for these events, you should consider requesting a special rider attached to your homeowners insurance or purchasing a separate insurance policy covering those events. For example, if you live in an area prone to earthquakes, you should consider investing in a separate earthquake insurance policy.
If damage to your home occurred due to one of these causes and you can’t reside in your home until the repairs are made, you may qualify for loss of use coverage. While each insurance provider has its own set of requirements, you’ll likely have to provide proof through a licensed inspector or contractor that your home is inhabitable.
It’s highly recommended to keep a video record of all your personal belongings to help streamline the claims process. Also, be sure to keep any evidence, documents, receipts, and correspondence as you work through the claims process. These details can be vital if you have a dispute with the insurance company.
Once approved, you can receive payments to cover reasonable housing and living expenses up to your coverage limits. Keep in mind that these payments will be minus any set deductible you have in place.
It’s important to read the specifics listed in your policy to determine exactly what named perils it covers and what deductible and coverage limits you may have.
Coverage Details
Coverage D goes above and beyond your standard homeowners insurance that covers the cost of repairing your home and replacing your personal belongings. The idea of this added protection is to help cover the costs of expenses you wouldn’t have otherwise incurred.
Housing Expenses
Coverage D pays for you to live somewhere else, such as a hotel or motel, while repairs are being made to your home. Your insurance company may not pay for you to stay at the most expensive hotel in town, but it does cover reasonable expenses. Additionally, if you’re displaced from your home for more than a few days, your loss of coverage policy may also cover rental fees at an apartment, condo, townhome, or single-family home.
Additional Living Expenses
Loss of coverage also pays for additional living expenses (ALE), such as moving and storage fees related to your personal property, pet boarding fees, laundry costs, and increased transportation costs, if necessary. ALE costs can also include any food expenses that go above and beyond what you typically spend. For example, if you’re staying at a hotel with no access to a kitchen, you may need to eat at restaurants more often than normal. Your Coverage D policy can help cover these added costs.
Fair Rental Value
If you rent out a portion of your home, your loss of coverage policy may help you recover some of the rental income you will lose while the tenant is displaced. Whether you qualify for this coverage depends on your specific Coverage D policy.
Your insurance policy will not cover normal expenses, such as your monthly mortgage payment, utilities, and regular food costs.
Cost of Coverage D
When you think about the peace of mind loss of use coverage can provide, it’s worth the small amount it may add to your homeowners insurance premiums.
While the cost of Coverage D varies between insurance companies and policies, there are several factors that could impact your premiums.
Location in High-Risk Area
Your rates for loss of coverage could be higher if you live in a high-risk area, such as one that is prone to wildfires, hurricanes, and floods.
Coverage Level
The coverage limit represents the cap amount the insurance company will pay you for housing and living expenses. Typically, coverage levels range between 10% and 30% of the total value of your home. For example, if your home value is $300,000 and your coverage level is set at 20%, the highest amount your insurance company will pay you for loss of use is $60,000. Generally, the lower your coverage level, the lower your premiums.
Kane emphasizes the importance of being sure you’re covered to minimize disruptions in your day-to-day routine:
Expert Take
Adequate Coverage D and ALE policies will cover all of your additional living expenses, making sure you can go on living as normal a life as possible while your primary dwelling is repaired or rebuilt. Loss of use coverage is the part of your homeowner’s insurance that steps in when a disaster forces you out. It helps cover additional living costs, so even if you can’t be at home, you can still keep your life on track.
Deductible
Your deductible amount can also impact your premiums. This is the amount of out-of-pocket expenses you’ll incur before the insurance kicks in. The higher your deductible, the lower your premium is likely to be.
When shopping for homeowners insurance, it’s important to compare quotes from several insurance providers. Be sure to read the fine print and determine exactly what is included in your Coverage D portion of the policy and what your coverage limits and deductibles are.
Don’t make the mistake of obtaining homeowners insurance without Coverage D. Instead, make sure you fully understand your loss of coverage protections and how to get the funds you need when you need them.
Reviewed by Kristopher Kane
Kristopher Kane is a career freelance writer with over 15 years of experience and a broad portfolio encompassing various topics within the insurance industry. He has written for both B2B communication and consumer-level customer engagement.