Suffering major damage to a home is a traumatic event for any family. The experience brings shock, worry about family members and pets, grief at the loss of treasured possessions, and stress about the overwhelming task of replacing it all. Right on the heels of these emotions comes a more immediate question: Where will the family live now, and how will they pay for it? Fortunately, standard Homeowners policies provide coverage for loss of use of a home.
The standard policy contains three Loss of Use coverages: Additional Living Expense, Fair Rental Value, and Civil Authority Prohibits Use. Additional Living Expense coverage pays for the homeowner’s necessary increase in living expenses when the home, damaged by a covered cause of loss, becomes unfit to live in.
For example, assume that a severe windstorm knocks a tree into a home’s upstairs. It wrecks three bedrooms and two bathrooms, causing pipes to break and damaging electrical wiring. Since the policy covers windstorm damage and the home is unsafe for the family to occupy, this coverage will pay the extra amount the family must spend to live elsewhere for a period of time. However, the insurance company will pay only the amount necessary for the family to maintain its normal standard of living. If the family was not living in a luxury condo before the loss, the company will not pay for them to live in one after. The company will pay for the shortest period of time necessary to repair or replace the damaged property or to permanently relocate.
It is important to note that the insurance pays only for the increase in costs, less any costs that decrease. If the family had a mortgage payment of $1,000 per month, the rent for a temporary home is $1,200, and utility costs are $50 less, the insurance will pay $150 per month.
Fair Rental Value coverage applies to homeowners who rent out part or all of the premises. Should a covered cause of loss damage the home and make it uninhabitable, the insurance will pay the rental value that the homeowner loses. Coverage lasts only for the shortest time necessary to repair or replace the premises, and the company will reduce the payments by the amounts of non-continuing expenses. For example, if the rental value was $1,000 per month but the cost of heat, electricity and water was $400, and all of these services ceased during the repair period, the insurance will pay the $600 difference.
Recently, an airliner crashed into a neighborhood near Buffalo, New York. In addition to the tragic loss of lives, the crash destroyed one home while barely affecting the others on the street. However, law enforcement authorities required occupants of surrounding homes to evacuate for several days while recovery crews cleaned up the site. These families probably benefited from Civil Authority Prohibits Use coverage. This insurance pays for the increased cost of living elsewhere for up to two weeks when civil authorities prohibit the homeowner from using her residence because of direct damage to neighboring premises caused by a covered peril. Once again, the company will pay only the amount above non-continuing expenses and only the cost of maintaining the family’s normal living standard.
The amount of insurance that applies to these coverages is normally some percentage (typically 30%) of the amount covering the home. For example, a policy covering a home for $200,000 would provide $60,000 coverage for the loss of use coverages combined. One of our professional insurance agents can answer questions about them. Plan ahead; it is always much better to find out how much coverage you have before the worst happens.