How Homeowners Insurance Can Cover Living Expenses After Disasters

This article explores how homeowners insurance can help cover living expenses after a natural disaster. It explains the provisions that provide financial support for temporary housing, food, and essential living costs during recovery. Understanding these coverage options can help homeowners navigate the challenges of rebuilding and maintaining financial stability after unforeseen events, ensuring they have the necessary resources to manage their recovery effectively.

If your home becomes temporarily unlivable after a natural disaster, a provision in your homeowners or renters insurance policy may assist you with alternative accommodations and other living costs.

CoreLogic, a real estate data firm, estimates that insured wind and flood damage from Hurricane Helene could reach as high as $17.5 billion. Additionally, insured losses from Hurricane Milton are projected to be between $30 billion and $60 billion, according to Morningstar DBRS.

Experts advise homeowners and renters impacted by a natural disaster to inquire about "loss of use" or "additional living expenses" coverage from their insurance providers.

This provision is designed to cover reasonable living expenses when your home is rendered unsuitable for habitation due to a covered event such as a hurricane, fire, or burst pipe.

According to Karl Susman, president and principal insurance agent of Susman Insurance Services, Inc. in Los Angeles, “I don’t know of any homeowners policy that doesn’t include it already.”

As you submit your claim, it’s crucial to discuss the loss of use coverage with your insurance company and understand how quickly it can take effect, advises Shannon Martin, a licensed insurance agent and analyst at Bankrate.com.

She adds, “If you contact your carrier, they may expedite the loss of use claim process for you and issue an early check so that you’re not left figuring out how to afford alternative housing.”

Here’s an overview of the coverage and factors to consider before utilizing it, according to experts.

How Loss of Use Coverage Works

Loss of use coverage is a provision usually included in homeowners insurance policies. Typically, it amounts to about 20% of the dwelling coverage and is disbursed when the home becomes uninhabitable, providing policyholders with funds for living expenses while repairs or reconstruction take place, according to experts. Eligible costs may encompass hotel stays, rental homes, food, pet boarding, or storage fees, among others.

For instance, if your home is insured for $100,000, which represents the cost to rebuild it, that amount is deemed the dwelling coverage, as noted by Susman.

He explains, “In that case, the policy would automatically include $20,000 in coverage for loss of use.”

“This allows you and your family to cover hotel costs and meals, especially since you may be away from home for an extended duration,” Martin adds.

Renters insurance generally contains a similar provision, as do condominium policies, according to Susman.

In the case of renters and condo insurance, the primary coverage is not for the dwelling since it covers personal property instead of the building itself, he explains. Typically, loss of use coverage amounts to 20% of the personal property coverage.

Be sure to check with your insurer regarding any policy limitations. There may be specific dollar limits for expenses or time restrictions for claiming loss of use coverage.

‘It’s Not Intended to Be a Long-Term Solution’

Loss of use coverage can assist homeowners in covering living costs after a natural disaster. However, experts emphasize that the funds are meant for short-term relief.

Jeremy Porter, head of climate implications research at the First Street Foundation, which focuses on climate risk financial modeling in New York City, states, “It’s generally not intended to be a long-term solution. The coverage typically does not provide enough funds to support individuals over an extended period.”

This can pose challenges because the costs associated with moving out can differ significantly after a major disaster compared to more typical circumstances, Susman notes, as housing becomes scarcer and hotel prices often increase due to higher demand.

While the coverage is designed for temporary assistance, the time required for repairs and broader financial recovery following major disasters can be extensive, experts explain.

“It takes a long time to recuperate and recover,” says Loretta Worters, a spokeswoman for the Insurance Information Institute.

It’s important to remember that you can file a claim on your policy while also receiving assistance from the Federal Emergency Management Agency, according to Susman.

Martin mentions that you could potentially use government funds to cover a hotel stay for a month, then secure a nearby place and utilize your loss of use coverage to help with the difference.

For questions or comments write to writers@bostonbrandmedia.com

Source: CNBC‍