How ‘loss of use coverage’ can help with costs after a natural disaster

By Finance News On Oct 12, 2024

Mobile homes surrounded by flood water after Hurricane Milton made landfall, in St. Petersburg, Florida, U.S. October 10, 2024.

Octavio Jones | Reuters

If your home is temporarily uninhabitable after a natural disaster, a provision in your homeowners or renters insurance policy may help you with new lodging and other living expenses.

Insured wind and flood damage from Hurricane Helene is estimated to be up to $17.5 billion, according to CoreLogic, a real estate data site. Insured losses from Hurricane Milton could range from $30 billion to $60 billion, per Morningstar DBRS.

Homeowners and renters affected by a natural disaster can ask about so-called “loss of use” or “additional living expenses” coverage from their insurance providers, experts say.

The provision is meant to help cover reasonable living expenses if your home is not suitable to live in as a result of a covered peril such as a hurricane, fire or burst pipe.

“I don’t know of any homeowners policy that doesn’t have it already there,” said Karl Susman, president and principal insurance agent of Susman Insurance Services, Inc. in Los Angeles.

As you file a claim, it will be important to ask your insurance company about the loss of use coverage and how quickly it can kick in, said Shannon Martin, a licensed insurance agent and analyst at Bankrate.com.

“If you call your carrier, they might be able to expedite the loss of use claim filing for you and issue a check early so that you’re not stuck trying to figure out how to pay for separate housing,” she said.

Here’s what the coverage is and what to consider before you use it, according to experts.

How loss of use coverage works

Loss of use coverage is a provision that is typically included in your homeowners insurance policy. It’s usually about 20% of the dwelling coverage and is paid out in the event that the home becomes uninhabitable and a policyholder needs funds for living expenses while the home is repaired or rebuilt, experts say. Eligible expenses might include a hotel or rental home, food, pet boarding or storage fees, among others.

For example, if you’re ensuring a house for $100,000, and that’s what it costs to rebuild the house, that is considered the dwelling coverage, Susman said.

“Then the policy would automatically come with $20,000 in coverage for loss of use,” he said.

“That way you and your family can pay for your hotel and pay for food, because you might be separated from your home for an extended period of time,” Martin said.

Renters insurance typically has a similar provision, as would condominium policies, Susman said.

For renters and condo insurance, the primary coverage is not dwelling because you’re insuring personal property rather than the building, he said. You’ll typically get 20% of the personal property coverage for loss of use, he said.

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