What is “loss of use” coverage and how does it work?

loss of use coverage

We’ve all got different standards. For some, a thin-walled apartment with a bass-loving neighbor is unlivable. For others, it’s a party.

But when it comes to renters insurance, things are a lot less subjective. You may have heard that your insurance will help cover the cost of a hotel room or other living expenses if your apartment ever becomes uninhabitable. You heard right—it’s called “loss of use” coverage, and it’s standard in basic renters insurance policies.

However, when it comes to loss of use in renters insurance, the definition of “uninhabitable” is very specific, and just because you deem your place unlivable, doesn’t mean your insurance company will pay. Here, we take a close look at the real loss of use coverage definition. Find out when your insurance will cover hotel stay—and when you may have to foot the bill.

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What is loss of use coverage?

Loss of use coverage is a type of renters insurance protection that is triggered when you’re forced out of your home by a covered peril. Under loss of use, your insurance company will pay for two things: temporary accommodations, and additional living expenses incurred as a result of being displaced.

Let’s break the loss of use coverage definition down a bit further.

First: What’s a covered peril? It’s a specific, damage-causing event that your insurance policy says your insurer will pay for. In a basic renters insurance policy, things like wind damage, lightning strikes, theft, and fire are covered perils, while floods and earthquakes are not. So if your place is uninhabitable due to damage from a fire—a covered peril—your insurance will likely put you up elsewhere and cover some expenses until you can move back home. If your home was ransacked by burglars and your door or windows are broken, rendering it unsafe to spend the night, your insurance should cover the cost of temporary accommodations. The reason is that theft is a covered peril under your renters insurance policy, which means it will trigger loss of use coverage.

On the other hand, if you’re out of your apartment because it was damaged in an earthquake—not a covered peril—you’re out of luck under a standard renters insurance policy (though you can purchase separate earthquake insurance if you live in a particularly vulnerable area).

Many people believe that any time their place is temporarily uninhabitable, their insurance will step in and help, but that’s not the case. Your renters insurance only covers a specific range of circumstances, and that’s true of loss of use, as well. If your power goes out for a few days, your loss of use renters insurance coverage won’t kick in because power outages aren’t a covered peril. The same goes for a malfunctioning air conditioning or heating system. Unfortunately, even if your heat goes out in the middle of a cold snap and you’re forced to find warmer accommodations, they won’t be covered under your renters insurance.

Does loss of use coverage only apply if there’s damage?

In some circumstances, loss of use in renters insurance can kick in even when no damage has occurred. Usually, this would happen if a civil authority prevents you from entering your home for a reason related to a covered peril. For example, if there’s a mandatory evacuation order related to hurricane-force winds or a nearby wildfire, your loss of use coverage would be triggered, even though there’s technically not any damage to your home. If your neighbor has a fire and the fire department won’t let you back into your apartment until it can be deemed structurally sound, that should also be covered under loss of use. But the idea of a “covered peril” still applies.

Does renters insurance cover hotel stays?

So you might be wondering, when your loss of use coverage is triggered by a covered incident, what does it actually pay for? Your insurance company is legally bound to make you whole, so it will make up for money you lose as a result of being displaced—up to your coverage limit. In general, that means your insurance will foot the bill for your temporary accommodations (like a rental apartment or hotel) as well as any increase in living expenses directly related to you being out of your home.

What kinds of accommodations will insurance cover?

Even though the answer to the question, “Does renters insurance cover hotel stays?” is sometimes yes, it’s important to understand the types of accommodations it covers. Though it would be great if you could book a penthouse suite at a five-star hotel and bill it to your insurance company, that’s not quite how it works. Most likely, your insurance company will use a service to set you up in a short-term apartment rental or hotel. You can elect to choose your own place, but because there’s a cap on your loss of use coverage within a renters insurance policy (more on that later), it’s often better to go through the service provided by your insurance company. They can get discounted hotel rates or even find you a furnished apartment so costs stay low in case you’re out of your place for longer than expected.

You also have the option to stay with a friend or relative. In that case, even though your insurance company isn’t paying for your accommodations, your loss of use coverage can still help you cover additional living expenses—like if you need to eat at restaurants more frequently because you’ve lost access to a kitchen.

If it turns out your landlord won’t be charging you rent while you’re displaced, your insurance will still help you find new digs, but you’ll be expected to contribute an amount equivalent to your old rent to help cover costs. Why? It goes back to the idea of your insurance making you whole — the point is to prevent financial losses while you’re out of your place, not to give you a temporary free ride. You’re still expected to pay an amount equivalent to your normal living expenses, while your insurance is there to cover the extra.

What are additional living expenses covered by a renters insurance loss of use policy?

If you’re spending more money on basic, day-to-day expenses as a result of being displaced, insurance will help you cover those extra costs. You’ll need to keep careful track of everything, save all of your receipts, and submit them to your insurance for reimbursement.

The most common additional living expenses involve food and laundry. If you usually cook your own meals but are racking up the Seamless bills while you’re without a kitchen, a loss of use policy in renters insurance can help. If you have a washer/dryer at your place but are now stuck using a laundry service, your insurance will chip in.

Some transportation expenses may also be covered by your insurance. If you previously had a free parking spot and are paying for a garage while you’re displaced, or if you’re paying more due to longer commute from your temporary digs, your insurance should help with those expenses, as well.

But remember, your insurance covers additional living expenses, not all living expenses. So if you typically spend $100 a week on groceries and your takeout bill is now $200, insurance will cover the $100 difference, not the full $200. Your insurance also won’t cover bills you’re still on the hook for while you’re out of your old place, because they’re part of your usual living expenses. If you need to pay to keep the cable and internet going at your home while you’re not living there, that’s still your responsibility. But, if you need to pay extra so you can also have internet and cable at your temporary accommodations, loss of use coverage should kick in.

Are there any limits to loss of use renters insurance coverage?

As with all insurance payouts, there’s a limit to how much money you’re entitled to under loss of use coverage. That amount isn’t tied to cost of living in your area, or your usual living expenses, but to the amount of contents coverage you purchase. (Remember, contents coverage is coverage for your belongings—the contents of your home.)

Standard loss of use renters insurance coverage will be equivalent to 30% of your contents coverage. If you’re insured for $20,000 worth of belongings, your loss of use coverage will be $6,000. That means your insurance will pay for up to $6,000 worth of temporary housing and additional living expenses, but no more. If you live in a particularly expensive area, you can choose to buy additional loss of use coverage as an add-on to your base insurance policy.

There may also be a time limit to your loss of use coverage. If your old apartment was destroyed in a fire and your landlord let you out of your lease, your insurance will help you pay for temporary accommodations and additional living expenses for a reasonable amount of time while you find another place. But if things drag on a lot longer than that for no reason, your insurance may cut you off, even before you’ve hit your payout cap.

What happens regarding loss of use coverage if you live with roommates and you’re displaced?

If your roommates all have their own renters insurance, you should be able to have your insurance companies split the cost of a temporary living situation. Then, additional living expenses would be covered separately by each roommate’s insurance company on an additional basis.

The answer to the question, “What is loss of use coverage?” can get a bit complicated, and that’s why we’re here to help. Still have questions about the loss of use coverage definition? Contact your renters insurance provider to learn more.