We often hear stories about people displaced from their homes after it becomes uninhabitable. In many cases, this happens after a fire, storm, or other natural disasters.
If you have home, condo, or renters insurance, Additional Living Expense (ALE) coverage prevents you from being "homeless." It can help keep you from needing to couch surf at your in-laws or friends' houses while you wait for repairs to be done.
Here are some key factors behind this coverage and how it works.
- Additional Living Expense (ALE) is insurance that covers the costs of living elsewhere if you cannot live in your home after something happens.
- ALE only covers situations where your home or apartment is uninhabitable after an incident.
- ALE covers many costs, but it does come with some limitations. It helps to know how your policy works before you need to use it.
What Is Additional Living Expenses Coverage?
Additional living expense (ALE) insurance may come with homeowners, renters, or condo owner insurance. ALE coverage provides compensation when you cannot live in your home due to an insured loss or claim and while your home is being repaired.
ALE provides you with money that allows you to maintain your normal lifestyle and compensates you for the extra costs of living elsewhere when your home is destroyed or uninhabitable. The coverage lasts until your home is repaired or until the policy limit is reached.
Besides the actual monetary coverage, the policy allows you to maintain your independence and privacy in your short-term home. This coverage, in turn, can relieve a lot of financial stress for you and your family.
When Can You Claim ALE?
You can only claim ALE if your home is made uninhabitable after a loss caused by a risk covered by your insurance policy. Sometimes the repair of your home can make your life inconvenient. You may prefer to go to a hotel instead.
But you shouldn't assume that leaving for a hotel will be covered by the policy. An insurance company has to approve payment for living expenses. The reason for leaving has to be specifically due to the insurance claim. For instance, their criteria for approval might be when there is no running water or electricity. These are conditions that may render the home uninhabitable.
You should always ask your insurance provider before spending money on alternative living spaces. They will assess the situation; then, they'll let you know if you're covered.
Having some repairs done in your basement for a week after water damage or sewer backup may not qualify. If you had half of your roof repaired after a storm but still had heat, electricity, and water, your provider might not approve your ALE claim.
How Does ALE Work?
ALE will only cover you for the additional costs of living. These are only reimbursable if they go above and beyond your standard costs because of the damage to your dwelling. The covered amount comes down to whatever the extra expenses are.
For instance, let's say you pay $500 a month for rent. Due to a fire in your building, your landlord tells you not to worry about paying the rent until the apartment is habitable again. At that time, you're not spending $500 on a living expense.
You find short-term lodging with similar quality and location, but it costs you $900 a month. Your additional living expense is $400 in this case; it's not $900.
Or, let's say that you decide to live a little more luxuriously because of the tough situation while you wait for your place to be ready. Instead of the $900 flat, you find a top-floor unit with a nice view for $1,300 a month.
The insurance company will take a look at your claim. They will see that you have not found the equivalent of your current standard of living. They might only agree to pay for the $900 apartment. Then, you only get $400 for extra living expenses during the month you were away from your home.
Remember that ALE is designed to cover extra expenses while you're away from your home. It's not meant to cover all expenses.
Here are a few things that an insurance company will consider paying for under the ALE coverage in a claim if it makes sense to maintain your lifestyle:
- Restaurant meals
- Increased mileage or transportation costs due to your temporary location
- Costs for your temporary accommodation, such as a rental, a hotel, motel, or room in a boarding house
- Laundry expenses if you don't have access to a washer and dryer at your temporary home
- Renting special items you are used to having
- Storage costs for contents under special circumstances
- Moving or displacement costs
- Pet boarding and more
ALE is meant to cover the difference between regular expenses and what you temporarily pay because of something outside of your control. Your insurer will always assess the costs you're claiming. Then, it will compare them to your ordinary lifestyle expenses.
As in the case of the tenant renting, similar assessments will be made by the insurance adjuster.
It is easy to misunderstand what is going to be paid out to you when you claim ALE. The last thing you want to do is start spending all kinds of extra money, only to find out you are only getting half of it back.
The good news is that most insurers have large networks and resources to help you find a home or rental similar to the one you've been living in.
The adjuster will often provide you with options to choose from that will meet your ALE limits. They will also discuss how long your policy will pay for the ALE.
ALE has limitations in most circumstances. That means it is a good idea to ask your insurance adjuster about the length of time you can expect to be covered while your home is being repaired.
What Is the Limit on ALE?
Depending on your policy form and type of policy, the limit on ALE is often:
- About 30% of the dwelling limit amount on standard homeowner policies.
- Around 50% of the personal property or insured contents amount on condo policies.
- Approximately 30% of the personal property or contents limit on a standard tenant policy.
These are just a few examples of what you might expect as a standard ALE limit. The key here is to know your limit. You can often find this on the dec page of your insurance policy.
There are policies with higher limits. Insurers may decide to increase ALE limits based on their criteria.
Restaurant costs are a common ALE expense that is misunderstood. You should always ask your adjuster how you'll be reimbursed and what is considered a reasonable amount per meal. Insurance companies often have guidelines for meals eaten out.
For instance, let's say Mary and Joe enjoy gourmet food. Joe is an excellent chef; he always keeps high-quality meats and seafood in the home. And he cooks nice meals every day. Mary and Joe's home is being repaired, so they move to a temporary rental home with a full kitchen. They go out to dinner a few times; then, they submit the receipts to the insurance company for reimbursement.
The insurer questions the bills. They see that the meals are all over $200, which is beyond their standard allowance for ALE. Joe explains they like to eat very well and are used to high-end cuisine in their home. The adjuster knew this about these clients. That's why they put them in a well-furnished home with excellent kitchen amenities.
Insurance companies don't pay for extravagant or costly meals. This doesn't mean you can't eat out at fancy restaurants. It just means you won't be reimbursed for the entire amount of the lavish meal.
Unfortunately, Joe's explanation of their additional living expenses doesn't add up in this case. The clients were given all the same amenities for cooking they had at home. Eating at their favorite restaurants was not an extra cost caused by being out of their home.
In this case, the insurer was within its right to pay the normal food allowance to the standard of what would exceed their normal grocery costs. Joe and Mary were forced to pay out of pocket because they didn't understand the coverage.
4 Ways to Make Sure You Get Maximum Benefits Paid
- Be ready to provide receipts for all your expenses.
- Document how the expenses are an increase from your regular expenses.
- Provide proof of your normal expenses. This can be used as a comparison point for the insurance company if they question things.
- Get written authorization for any special expenses from the insurance company to avoid misunderstandings.
There's nothing wrong with enjoying yourself and trying to make the best of a hard situation; it's just important to know what you will be getting. When in doubt, always ask your adjuster to explain how expenses will be covered. That way, you don't end up footing the bill.