An often overlooked portion of insurance claims is for Additional Living Expenses, commonly referred to as "ALE," and Loss of Use. This coverage comes into play when you've sustained a covered loss to property that renders it uninhabitable. As you might guess, uninhabitable can be a term of art and depends greatly on the type of damages to the property and the individual living in the property.
If the proper procedure isn't followed for these coverages you could be losing money from your hard earned savings, or losing money on your rental property that you might never see again.
What does my policy cover?
Additional Living Expenses
When the property you live in is rendered uninhabitable, either by an infestation of mold, an inundation of water, significant fire or smoke damage, lack of working or usable plumbing, health concerns related to damages or repairs, or even when a significant portion of the property is unusable during repairs, then you may have a claim for Additional Living Expenses.
From here forward, it's important that you keep an open line of communication with your insurance company before incurring any Additional Living Expenses. Placing them on notice of the claim is one of the easiest ways to prevent future disputes. Many insurance companies have departments dedicated to helping accommodate you. Honestly, when insurers that have a department or liaison, that person is often the most helpful person you'll ever deal with at an insurance company.
It's also worth noting many policies vary in your requirements to be reimbursed for these types of costs. If you're not thoroughly familiar with your policy, it's best to have someone help you navigate this potential mine field. Why?
These types of expenses are only reimbursed as you've incurred them, and if you're not pre-approved, you're out that money indefinitely (which is until the insurance company decides to pay, either through settlement or litigation)!
So, what's covered?
- Typically, if you have to move out rental costs are reimbursed for either a hotel or comparable dwelling for the shortest period of time required to actually repair your property. You're obligated under your policy to mitigate your damages, and that includes your living expenses. If a monthly rental is cheaper than a week in a hotel for a family of six and their three pets, then that's the sensible option and more likely to be reimbursed. Just because you've suffered a loss in your home and the insurance company is picking up the tab doesn't mean you're getting a vacation on someone else's dime. Sometimes, insurance companies will arrange for direct payment to a landlord, hotel or rental agency.
- Extra fuel and/or mileage is reimburseable if you have to travel a farther distance than normal to the places you regularly travel like work, meetings, school, etc.
- Meals may be reimbursed, whether or not you're out of your home, but it can depend. If you typically eat all of your meals in restaurants or take-out, these meals aren't "additional expense" as a result of your claim. If you normally cook at home but no longer have the use of your kitchen, it should be reimbursed. Be prepared to prove this. And, no. Alcohol and tobacco products are not reimbursed.
- Increases in electric or water bills may be reimbursed under certain circumstances. Often times emergency service contractors running high powered fans for a week will cause a spike in your power bill that can be considered part of your insured loss.
- Laundry costs, storage, pet boarding, and a number of other items may also be considered.
What's not covered?
- Additional Living Expenses are NOT a form of insurance for pain and suffering or loss of your time in meeting with insurance adjusters, contractors, etc. Likewise, delays in your claims are not reimburseable as Additional Living Expense as a form of "punitive damage."
- You cannot live in a tent in your backyard and expect to earn a paycheck as a reward for "roughing it." (Yes, we've had more than one client propose this to us...)
- The insurance company will not pay you to live in another vacant property you own if it was already vacant or scheduled to be.
- You will not be reimbursed for purchasing a trailer, RV, motorhome or other vehicle, or second/seasonal home or rental property. The purpose of insurance is to make you whole and if you're reimbursed for purchase, or a portion of a purchase for something you'd get to keep later on. This is called "betterment," and is against the entire principle of insurance.
- Most importantly, you will not be paid to live with a friend or family member for free. If you are intending to stay with a friend or family member while you must be out of your home, you must be paying for the privilege of doing so, and, again, be prepared to prove it. If you attempt to stay with someone for free, claim you've incurred expense in doing so and the insurance company proves you have not paid, you have committed insurance fraud, which is a felony, and will likely jeopardize the coverage for the rest of your claim as well.
Loss of Use
The term "Loss of Use" may be used interchangeably with Additional Living Expenses, but may also refer to reimbursement of fair rental value for a property insured for this type of occupancy. In order to obtain this type of coverage if your rental property is uninhabitable, you must have either a commercial policy designating a property for rental, or a dwelling ("landlord") policy. If you own a rental property, make sure this coverage exists with your agent. If you've rented a property that you formerly occupied with a homeowners policy, your insurance company may have grounds to void your coverage for an unauthorized change in occupancy and risk.
If you do have a valid claim for Loss of Use, your tenant must have vacated as a result of an insured loss, or an insured loss must have prevented a pending occupancy from taking place. The reimbursement is typically based off the price in a documented rental agreement or lease. You can't argue that you were renting below market value and should get more. The purpose is to make you whole, not rectify a less than desirable lease. Likewise, if the property was not rented and there was no pending tenant, the coverage doesn't apply to a non-existent tenant.