You just experienced a loss to your home. Nobody plans on actually having an insurance claim, but they do happen. Whether it’s a fire, wind, flood, or anything else, but you’re left with trying to figure out the next steps and how to get your house back.
The most important thing is you and your family’s safety, so let’s hope that is the case. Regarding your house, you’re happy to find out from your independent insurance agent that you have excellent coverage and will receive the full cost to rebuild it.
But now what? Rebuilding a house takes time, and you first have to deal with the cleanup. This is where loss of use insurance is critically important, because it will pay for you to temporarily live somewhere else while you rebuild your home.
What Is Loss of Use Insurance?
Loss of use pays for the cost of losing your home, your apartment, or even your car. If you can’t live in or operate it, then you’ll have additional expenses to find someplace to live or another car to drive.
Loss of use insurance covers that extra cost. Loss of use can also cover lost income if you’re renting out a home to somebody else and are a landlord. The loss of use coverage will pay fair market value for your rental income, which may or may not be exactly what you’ve been charging rent. The fair market value is based on similar rental prices in your area, which may be different from what you have been charging.
What Is Loss of Use on Homeowners Insurance?
Your homeowners insurance should automatically have loss of use insurance coverage. It will pay for you to live in a temporary residence that maintains your current standard of living.
So if you lived in a nice two-story house with four bedrooms, you can look for a rental home that’s similar to your home and your insurance will pay you the amount that it costs to rent.
Similarly, if you live in a one-story ranch style home, you’ll have to look for something similar to rent.
Your loss of use coverage isn’t designed to last forever. It will pay for the shortest amount of time possible until your home is rebuilt or repaired enough for you to move back into it. And it will stop paying completely if you decide to not rebuild your home and instead choose to buy a different home.
What Is Loss of Use on Renters Insurance?
Loss of use with renters insurance operates similarly to homeowners insurance. It will pay for you to live somewhere else until your apartment or house is repaired and you’re able to move back in.
Loss of use will pay for an increase in cost, as long as the quality of the new place is similar to what you had before, because it’s designed to help you maintain your current standard of living. Loss of use does not cover a cancelled or terminated lease agreement, however. It only covers an accidental loss of your residence due to a normal claim, such as fire or wind.
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What Is Loss of Use on Car Insurance
Loss of use with car insurance is slightly different because it’s not called loss of use and it’s not automatically included most of the time. The equivalent coverage in car insurance is oftentimes called rental car reimbursement, but it works similarly to loss of use in homeowners and renters insurance.
If you have rental car reimbursement on your car insurance policy and you experience a covered loss to your vehicle, making it undriveable, then you’ll receive a daily allowance to pay for a rental vehicle while yours is out of commission.
Rental car reimbursement usually comes with two separate limits, a daily limit and a maximum limit. For example, your policy may pay you up to $50/day with a maximum of $1,500. This will usually be written as $50/$1,500 on your policy. Whatever the first number is, the second number is usually 30 times as much, to reflect 30 days worth of rental cars. However, the limit is not 30 days, it’s a dollar amount.
If you are using your vehicle to transport people, such as with Uber or Lyft, loss of use will not typically cover lost income under a standard car insurance policy. But since you’re probably insuring your vehicle with a specialized endorsement that covers you at least partially while you’re driving for a ridesharing company, you may be able to receive limited coverage for lost income with your insurer. Be sure to talk with your local independent insurance agent to see if you’re covered for lost income.
With commercial auto insurance, loss of use applies the same as for personal car insurance. You can have rental car reimbursement on your policy to rent another vehicle and presumably not have any lost income. Lost income under a commercial insurance policy falls under business income coverage, which is usually a part of a commercial package policy.
How Much Loss of Use Insurance Do I Need?
Under homeowners or renters insurance, loss of use is normally automatically included, but in two very different ways. Many insurance policies will set the loss of use limit as a percentage of whatever amount of coverage you have on your home, with the normal percentage usually being 20%.
For example, if you have a home that’s insured for $400,000, then your loss of use limit would be $80,000. You would have a maximum of $80,000 to use towards rent or finding temporary accommodations until your home is repaired and you can move back in.
You may be able to increase or decrease this number with some insurance companies, while others simply set it in stone as an automatic percentage.
Other insurance companies won’t put a limit on the loss of use amount. Instead, they’ll simply say “actual loss” on the policy. This means that the company will pay whatever dollar amount is needed for you to maintain your current standard of living while you either wait for your home to be repaired or you decide to buy a new house. Even with ‘actual loss’ insurance policies, the insurer will still only pay you for the shortest amount of time possible, which is for your house to be livable again.
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TrustedChoice.com Article | Reviewed by Grant Botma
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