A home or condo insurance policy isn’t a luxury—almost all mortgage companies require them. Even if you don’t own your home, it’s a good idea to have a renters insurance policy. These are wise investments you make to protect yourself and your personal property from risks like fire or theft. But your insurance can do more than compensate you for repairs or replacement of lost items—it offers coverage for additional living expenses as well.
Additional Living Expense, or ALE, coverage pays the costs you might have if a disaster makes living in your house, condo or apartment impossible. Sometimes called Loss of Use coverage or Coverage D, this type of coverage ensures you’ll be reimbursed for the costs incurred if you have to seek temporary refuge—or even relocate entirely—after a covered peril.
For instance, if there’s a fire in your home, the resulting smoke or water damage might make it impossible to comfortably or safely live there. ALE coverage provides you with the ability to cover the costs necessary to find lodging in a hotel or other temporary dwelling, eat at restaurants, and other basic living expenses during the time you’ll be displaced.
If you experience something like a fire and it would take contractors three or four weeks to make the necessary repairs, you’re going to run into unforeseen costs. During that time, you’ll probably have to pay more than you normally would to maintain your usual standard of living. ALE coverage steps in to reimburse you for those additional costs when they rise above your normal living expenses.
What exactly does “additional living expenses” mean? ALE coverage is intended to cover the added costs that come with being displaced from your home. This includes basic things like hotel stays and meals at restaurants—but often a lot more as well.
ALE coverage can also include the cost of having to use a laundromat, extra mileage from a longer commute, pet boarding, restaurant meals, storing furniture or other items and the cost of moving possessions out of your home and into temporary housing. The exact amount and type of coverage depend on your specific policy, so it’s best to be familiar with where you’re covered—and where you’re not.
Additional living expense insurance generally works on a reimbursement basis, so be sure to keep good records of your expenses while displaced from your home. It’s also important to know that this kind of coverage is only for additional expenses—the amount above what you would normally spend. If you normally have a mortgage payment of $2,500 and you have to pay $4,000 for a month-long hotel stay, your ALE coverage would reimburse you for $1,500, or the cost of the additional expense you experienced.
Keep track of everything you spend while you’re waiting for your home to be made livable, even if you’re not sure if these costs will be covered by your policy. Your insurance company will let you know if something doesn’t fall under your ALE coverage, but it never hurts to ask. If you incur expenses for things you can’t get exact receipts for—like using the laundromat or those extra commute miles we mentioned above—keep a detailed log, or ask your insurer how best to keep track of these non-receipt expenses to ensure you can be reimbursed for them.
Some policies will cover your total additional expenses, but only for a set time after the covered peril, while other policies will offer in perpetuity coverage that has a cap on the total amount you can be reimbursed monthly or weekly. If your insurance company caps your ALE payments, the amount is usually between 10 to 20 percent of your total dwelling coverage, also known as the dwelling limit. If you have condo or renter’s insurance, your ALE cap is determined a little differently. For condo owners, this is usually around 50 percent of the personal property coverage your policy affords you, and for renter's insurance, this is usually capped at around thirty percent.
Bear in mind that you’ll also have to show proof of what your normal living expenses are. ALE payouts will only cover the extra costs, so your insurer will need to know how much you usually spend on things like gasoline, food and other incidental expenses. If you don’t already have something like a detailed budget you can provide, it would be a good idea to track all of your normal expenses so you can easily calculate how much you spend on a weekly or monthly basis.
You probably already have ALE coverage as part of your home insurance, but it’s a good idea to review your policy. If you couldn’t comfortably cover a month-long stay in a hotel or the cost of eating three meals a day at restaurants, you’ll want to be sure you’re adequately protected. If you have any questions about additional living expenses or the specific reimbursement policies your insurer has, ask them. You can usually increase your ALE coverage amount for only a slightly higher premium.
If you live in a disaster-prone area, it can be especially important to be sure you have this kind of coverage. ALE coverage ensures that you won’t be stuck without a place to live after a natural disaster. It’s also important to note that most home insurance policies don’t cover flood, earthquake, or other kinds of damage, so if these things are a concern you’ll want to consult with an insurance company you can trust to make sure you’re protected.