Insurance coverage for your home, automobile, or your business is a move that is designed to protect your finances. If there’s a covered event such as a fire in your home or you are in an accident, having insurance coverage means that you don’t have to worry about paying out of pocket to replace or repair what was damaged.
Many of these forms of property protection insurance offer a provision called “loss of use” coverage. What is loss of use coverage? Is it worth adding on if it is not included in your basic policy?
Ensure you’re protected
Loss of use defined
“Loss of use” is a situation that many policyholders don’t think too much about until after there has been a covered event. After all, the point of purchasing insurance is to have that peace of mind that making a claim will help you rebuild or replace what has been damaged. It’s thinking about the “in between” area that can be missed.
Loss of use is exactly what it sounds like. If you lose the ability to use your property, this coverage is designed to bridge the gap that will exist while repairs are underway.
For example, a house fire is typically a covered event. But even a small fire can render your home unsafe to live in until cleanup and construction are complete. Where will you stay until you are given the all-clear to return home?
Another example is being involved in a car accident. Not having access to your own transportation can be very disruptive; you need your car to get to and from work or school. It’d be a truly unfortunate outcome if a somewhat minor car accident causes someone to lose a job because they no longer have the ability to get to and from work.
In each of these situations, loss of use coverage steps in to fill the gap. For the homeowner who had a house fire, loss of use coverage on their homeowners insurance would pay for a hotel, meals, and sometimes even boarding costs for pets during the time in which the home is being repaired.
For the car accident, loss of use coverage typically provides the use of a rental vehicle until your car is fixed or replaced.
Do you really need loss of use coverage?
Some amount of loss of use coverage may be included in your basic insurance policy, particularly homeowners or renters insurance.
This coverage is also sometimes called “additional living expenses,” abbreviated as ALE. Typically, there are time and coverage limits to follow, and it’s important to note that “reasonable” living expenses are covered. (You most likely will not be able to camp out at the Ritz-Carlton for a year, for instance, and have all of that expense reimbursed by a claim.)
Renters insurance also typically includes a loss of use provision and coverage, allowing you to find a place to stay while repairs are made following a covered loss. When it comes to your living situation, some form of loss of use is usually included in your coverage, but check your policy for limits and details.
We have multiple vehicles—do we need this coverage?
For car insurance, loss of use coverage is often an add-on policy. While it is generally very affordable coverage to carry, if there are multiple vehicles in your household, you might not even need it.
When deciding about whether or not to pay for this additional coverage, think carefully about how your family would manage if one vehicle was out of commission for a while. What would a week, two weeks, or even several months without one of your cars look like for your family?
And remember to periodically revisit this thought exercise as more drivers are added to your policy, such as teens getting their licenses and using one or more family cars to get to and from their jobs.
Perhaps you don’t need loss of use coverage when there are two drivers and two vehicles, but that could change when there are four drivers in the household and only two vehicles.
Every family is different, and circumstances change over time. Each time you add a new driver to your policy, review your automobile coverage options to make sure it aligns with how your family uses vehicles now.
Do businesses need loss of use coverage?
Loss of use coverage in commercial insurance is typically called “business interruption coverage,” and yes, it is a very good idea for any size of business to carry. Most bundled “business owners policies” (BOP) include business interruption coverage.
Business interruption insurance can help to cover wages, bills, and even interest payments on loans if your business has to close temporarily due to a covered event.
How much does loss of use coverage cost?
As noted above, in some instances your loss of use coverage may be included in your basic policy, but it is important to understand what is covered and what limits exist. For automobile policies, which typically have loss of use as an add-on, the cost of additional coverage can be as little as a few dollars per month.
To learn more about loss of use coverage, contact the experts at Rate Insurance. With access to a wide range of insurers, they can help you determine if additional coverage makes sense for your home and vehicle coverage. And, with access to commercial providers as well, they can also assist you with business interruption coverage if needed.
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