Whether you’re a homeowner, condo owner or renter, your home insurance policy likely includes a section on additional living expenses (ALE). This is where you will find the kinds of costs your insurer will pay if you are displaced from your home by a covered event, such as fire. The damage usually must make the part of the dwelling where you reside unfit for living.
Consider these scenarios:
- Imagine a tree falls on your garage and pokes a hole in the roof of your master bedroom. You might not have to move out, since you can sleep in a different room or install a temporary roof cover. In this case, your insurer might not deem the dwelling uninhabitable, and no additional living expenses would be paid.
- On the other hand, say your garage catches fire. Your whole house is filled with smoke and is soaked by firehoses. In this case, you would be covered for the cost of emergency shelter, restaurant meals (not fancy ones) and a rental home while yours is being repaired.
ALE coverage is often calculated as a percentage of your home insurance coverage limit. However, some insurers put a monetary maximum per month on the amount they will pay and the number of months they will pay, so check your policy carefully. You must be prepared to make up for whatever your insurer won’t pay.
Your ALE clause might also include coverage for forced relocations due to damage to an adjacent property. For example, if there is an explosion or structural damage to an adjoining townhome, the governing authority could declare the neighboring structures unfit for dwelling until an engineer certifies they are safe. In that case, such an ALE clause would cover your expenses to temporarily relocate, though the coverage period may be short.
ALE may also cover pet boarding, replacement clothing, and storage for personal items so they are secure and available during the repairs. It might even pay for rental furniture if the place you lease is unfurnished.
How ALE payments are made
Though ALE coverage is meant to keep you at your normal standard of living, most ALE clauses are written on a reimbursement basis. That means you will have to pay for the things you need, keep the receipts, and submit them to the insurer to get reimbursed. This is why it is important to understand what is covered, how long you’re covered and what the monetary limits are. If you don’t have the resources to pay upfront for additional living expenses, you can petition your insurer for immediate help. Some do offer financial solutions in these situations.
It’s important to remember that ALE is not intended to pay for luxuries. It’s to tide you over so you can live comfortably while your residence is being repaired. So, for example, once you are in temporary housing, you will be expected to buy groceries and cook at home instead of eating out, and you will be expected to wear the clothes that the restoration company cleans and delivers to you.
Not every calamity is covered by ALE
Floods are a prime example of a hazard that might not be eligible for ALE coverage. Since floods are not covered by home insurance, they would be excluded from ALE benefits. If you do have flood insurance but it is through the government’s National Flood Insurance Program, you will not have ALE insurance since that program doesn’t offer such coverage.
However, if you get your flood insurance on the private market, your insurer may include an ALE clause. This is an important consideration when looking at private flood policies, so inquire about each insurer’s rules regarding the duration and monetary limits of ALE.
Earthquake insurance is another type of policy that’s typically bought separately from homeowners insurance. Earthquake insurance policies often give you the option of covering additional living expenses, but they may have their own deductibles. Moreover, coverage limits are typically pretty low. Read the policy’s coverage so you are not caught with substantial unfunded needs if your house is wrecked by a tremor.
One type of insurance that puts money in your hands quickly is parametric insurance. It is available for floods and earthquakes and is based on a pre-agreed measurement of the magnitude of an earthquake or the depth of floodwaters.
In any case, there is no adjuster to wait on and you don’t have to save or turn in any receipts. The metrics of the event that trigger coverage are preset, and if your disaster meets or exceeds the threshold, the money is paid out. It usually takes several weeks to get the money, though some companies promise faster service. That puts money in your hands without the need to keep paying upfront and getting reimbursed.
Your home insurance agent can help you fully understand your options and obligations when it comes to additional living expenses, so read your policy and ask about anything that’s unclear. And if parametric coverage sounds like a good way to fill a financial risk gap, ask your agent for further information.
