Condo insurance can be confusing. Your building has coverage, but you also need coverage of your own for the condo itself. While most people are familiar with contents and liability coverage, most condo insurance policies also include loss of use coverage.
What happens if your condo is damaged to the point of becoming uninhabitable and you need to pay for a temporary home elsewhere? That’s where loss of use condo coverage comes in.
What is loss of use coverage?
Loss of use coverage helps pay for expenses in the unfortunate event you can’t live in your condo due to an incident. Also known as additional living expenses (ALE) insurance or coverage D, “loss of use” is typically included in a standard set of coverages for your condo insurance policy.
Say your condo was damaged, and that damage is covered by your condo insurance. Great. However, the condo was rendered uninhabitable, and you have to evacuate the home during the repairs. You have to pay for a hotel or temporary apartment until you get the all-clear to move back into your condo.
Your loss of use coverage can help reimburse you for those housing and living expenses while you are temporarily displaced from your condo during home repairs.
There are two important notes with loss of use coverage:
1. You can only be covered by loss of use if you leave the house for a covered claim.
For example, your condo insurance covers fire. So, if a fire damages your condo and you need to relocate for two months, your loss of use would help pay for those relocation expenses up to your coverage limit. But, if your condo insurance doesn’t cover flood and your home was damaged by a flood, you would be paying for those relocation costs out of pocket.
That’s why it’s so important to make sure your condo insurance is as comprehensive and thorough as possible. Even a small flood or uncovered incident could rack up a significant financial burden for repairs and relocation expenses.
Most condo insurance will include a defined list of “named perils.” This usually includes fire, hail, theft, and vandalism. If the peril is not named in the policy, it isn’t covered. But you can talk to an insurance agent about getting a Unit Owners Special Coverage A endorsement, which creates an “open peril” policy to cover additional hazards like flooding, earthquakes, and sinkholes.
2. Loss of use will only cover up to your limit.
If your loss of use coverage limit is $5,000, you shouldn’t choose a hotel that costs $500 per night unless you’ll only be displaced for ten days. Most repairs can take up to several months, so you’ll want to ensure your coverage is protecting you and you don’t have to pay out of pocket after your limit is used up.
This means you’ll usually want to find a temporary home that is less than or equivalent to your loss of use coverage. Make sure you talk to your agent before finding a temporary home, so you don’t end up paying some of the costs out of pocket.
How much loss of use coverage do you need?
Most insurers include loss of use coverage in a standard condo insurance (HO-6) policy. You should work with your insurance agent to make sure loss of use is included in your condo package.
You want enough loss of use coverage in the case that you had to pay for a hotel for at least one to two months. You’ll generally want to keep the same lifestyle you have now, so you’ll watch to adjust your coverage appropriately. As a general rule of thumb, the loss of use coverage is 20-30% of your dwelling coverage limit. For example, if your dwelling coverage limit is $10,000, your loss of use would likely cover $2,000.
Keep in mind that loss of use coverage never falls under your homeowners’ association master policy. Your HOA is never responsible for your relocation costs unless the incident was caused by a communal problem, like a main valve broke and destroyed several apartments. Learn the difference between your personal condo insurance and the homeowners’ association master policy here.
Loss of use does not cover any expenses to replace any items that are damaged in your home. That would fall under your condo personal property coverage. It also doesn’t cover any third party’s expenses in the case of an incident, which would fall under liability coverage.
Your condo insurance can cover more than just the unit itself if you have the proper coverage in place. If something were to happen to make your home unlivable, there are ways a condo insurance policy can help beyond providing money for repairs. Check with your agent that your policy does include loss of use and if you ever need to use it, consult your agent on how the process will work so that you can be sure you’ll be reimbursed.
Talk to an InsuraMatch agent now to find the perfect condo policy to protect your home and family against unexpected disasters.