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Whether you own or rent, a home insurance policy can help fix the property and replace your belongings when things go wrong. However, what happens when you cannot live in your home due to the damage?
Most home insurance policies include coverage for temporary living expenses as part of the policy. If a disaster renders your place uninhabitable, the insurance company will reimburse you for costs beyond what you typically spend in your day-to-day life. It’s another financial safety net that property insurance provides, helping ensure that circumstances beyond your control don’t destroy your finances as well as your home and belongings.
Although this additional living expense coverage, usually referred to as ALE, is a standard part of most home insurance policies, many homeowners don’t realize they have it or understand how it works. This guide will help you learn more about ALE and how it can help you, and help you determine whether you need to increase the coverage to protect your family and bank account.
Homeowners insurance typically includes several types of coverage:
The default coverage amount for ALE is usually 20% to 30% of the dwelling coverage. For example, if you have $300,000 in dwelling coverage, the insurer will reimburse you up to $60,000 to $90,000 for the extra costs you incur while your home undergoes repairs or you find another place to live. You may be able to add additional expense coverage or designate an “actual loss limit,” which will ensure you receive reimbursement for all your losses, even if they exceed the usual amount.
Some insurers place a time limit on the ALE coverage in addition to or instead of the dollar limit; you might have up to 60 days to find alternate housing, for example.
If you rent, ALE is often an optional add-on to your policy. Rather than a percentage of the policy amount, most renter’s policies designate a specific dollar amount limit. The higher the limit, the more premiums you’ll pay.
The key term in “additional living expenses” is additional. In other words, the insurance company will only reimburse you for costs you wouldn’t usually have if you could live in your home. It won’t pay your mortgage, utility bills, car payments, or child care costs, for example, since those are expenses you would otherwise have.
The policy will pay your expenses for things like:
To make a claim for reimbursement, you must keep detailed records and receipts for everything you spend above and beyond your regular expenses. If you can’t prove how much you spend, the insurer may deny your claim.
When you make a claim for living expenses, it’s critical to ensure that the insurance company makes the reimbursement check out to you. While payments on claims for property damage might go directly to your mortgage company or a service provider, your lender has nothing to do with the expenses you incur while your home is uninhabitable. You need that money to cover your bills, so double-check to ensure you get the payment.
Another element of ALE you must understand is the concept of a covered peril. When you purchase household insurance, the policy details the covered perils or occurrences that they’ll pay claims on. Some companies offer open peril insurance, covering any disaster except those expressly excluded.
Most homeowners insurance policies cover a wide range of perils, including:
Sometimes, you can claim ALE reimbursement if you have to leave your home, even if it doesn’t sustain damage. For example, if local authorities issue a mandatory evacuation due to an impending storm or an encroaching wildfire, you can request reimbursement for associated expenses. You may also qualify for reimbursement due to extended utility outages related to disasters.
Most residence coverage options also restrict claims on ALE coverage for:
In any of these cases, you’ll pay any expenses out of your pocket if you must leave your house.
Floods and earthquakes aren't on the standard list of perils. Because these events represent significant risks and typically result in substantial losses, most insurance companies don’t include them in standard home insurance policies and require customers to purchase a separate policy to cover them. This applies to both homeowners and renters insurance policies.
You have options for acquiring this coverage, but it’s critical to read the fine print on the policies to ensure they’ll cover your additional costs if a flood or earthquake makes your home uninhabitable. For example, FEMA offers a flood insurance product, but the policy only covers up to $250,000 in dwelling protection and won’t cover the cost of replacing personal belongings or paying for temporary living expenses after a flood.
To get that protection, you must purchase a private flood insurance policy that includes ALE. The same goes for earthquake insurance, which you must buy as a standalone policy or a rider on your homeowners insurance policy.
Additional living expenses coverage is a standard inclusion in most house insurance policies, and most people accept the default limit. However, you should review the policy and be aware of the limit to ensure you have enough coverage.
One way to determine whether you need a higher coverage limit is to calculate the anticipated cost of not being able to live in your home for 30 to 60 days. Consider the average nightly hotel or short-term rental rate, the cost of restaurant meals, and other expenses you’re likely to incur to determine how much you would have to spend on top of your normal monthly expenses. If the amount exceeds the policy limits, consider buying more insurance.
Some insurance professionals recommend purchasing as much ALE as you can afford since it’s hard to predict disasters and how long you’ll be unable to stay in your home. Regardless of which approach you take, if you do experience a covered peril and need to leave your home, keep the coverage limits in mind during the displacement period so you don’t spend more than your home assurance company will pay.
For renters, this coverage may be an optional add-on. It isn’t mandatory, but most insurance agents strongly recommend adding at least a minimal amount to provide a cushion if you must leave your apartment or rental house.
No one ever expects to experience a disaster that displaces them from their home. However, the Urban Institute reports that nearly 3 million people in the United States had to leave their homes for an extended period due to natural disasters in 2023. Whether a windstorm tears off your roof or a fire burns your home to the ground, knowing that you have insurance to help replace your home and personal belongings provides a small bright spot during the darkest moments.
With ALE coverage as part of your property insurance policy, you also gain the peace of mind of knowing you can maintain a standard of living while you recover from the devastation. If you don’t think you have adequate protection, want to purchase a renters insurance policy, or need homeowners insurance on a new home, Insurdinary can help.
Use our simple online quoting tool to find the perfect home insurance policies for your needs and compare them side-by-side. One of our friendly and knowledgeable insurance agents can answer all your questions and help you buy the perfect policy.
Get the help you need to cover what matters most from Insurdinary. Contact us today for more information or help buying insurance.