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Homeowner's insurance: Who's going to pay the bills when you can't go home?

Your home insurance policy typically covers the cost to replace personal property and make structural repairs to your home when disaster strikes. But who pays your expenses when your home is temporarily uninhabitable?

All kinds of disasters can strike your home. For instance, thousands of fires damage homes each year. The U.S. Fire Administration reports that in 2010, more than 362,000 residential fires were caused by such things as cooking mishaps and electrical malfunctions. These blazes resulted in more than $6.6 billion in property losses.

"People don't think about what happens if, say, their house is (destroyed) by fire and it takes eight or nine months to rebuild," says David Walker, president of Hartland Insurance Agency in Hartland, Mich.

home insurance additional living expenses During that time, you have to live someplace else, but your mortgage company still will expect payments. Ditto for the electric company, the tax collector and so on.

The good news: You're protected

This is when Coverage D in your home insurance policy kicks in, better known as loss of use (LOU) or additional living expenses (ALE) coverage. "Additional" means what you spend over and above your usual monthly expenditures to maintain your normal standard of living for the period of time your home is uninhabitable. ALE coverage pays for expenses associated with your temporary accommodations so you can continue to cover your regular monthly bills.

Immediately after your home is damaged, ALE coverage covers the cost of a short-term hotel stay. Once an insurance adjuster determines the extent of home repairs and how long they should take, ALE coverage assists with temporary accommodations that are equivalent to the home you've left behind.

In most cases, you should be able to relocate locally. This is critical when you need to go to work, the kids have to go to school and you want to check in with the contractors repairing your home. But that might not be possible if your home is damaged by a natural disaster that affects a lot of homeowners in your area.

After Hurricane Andrew in 1992, people from Miami had to go as far as Vero Beach, Fla. -- 140 miles away -- to find housing, says David Thompson, an instructor for the Florida Association of Insurance Agents. "The cost of living and time out of the house can be very different in a catastrophe loss," he says.

What's covered?

The primary additional living expense covered is the rent for your temporary home. Other expenses that may be covered include:

• Utilities in the temporary home.

• Reasonable expenses for restaurant meals.

• Laundry and cleaning.

• Transportation expenses (if, for example, your cost to commute to work increases).

• Kennel fees for pets you can't bring with you to your temporary residence.

Don't ever assume

Always ask your insurer what's covered before you spend money that you think should be reimbursed, and keep records of what you spend.

"Your insurance company has a range of expenses they expect to receive," says Brian Allred, a Liberty Mutual agent in Ontario, Calif. "This is not free money; it's money that's available to help you survive in an emergency."

Your insurer can and will deny claims for things it deems excessive, so don't expect to dine on lobster and champagne while you're out of your home.

ALE coverage is standard in home insurance policies, but the amount can vary. Review what your policy provides, and upgrade if you think it's not adequate. The typical home insurance policy builds in ALE coverage at 20 percent of your home's insured value. So, if your home is insured for $250,000, your ALE coverage would be capped at $50,000. Some policies might go as high as 50 percent.

To determine whether that percentage is enough, consider:

• How much it will cost to rent a home that's comparable to yours.

• What you might expect to spend for meals if you ate three times a day in moderately priced restaurants.

• What your expenses for utilities might be.

"Remember that it can be very costly to rent an apartment or a house short term," says Audrey Kessler, vice president of New York insurer HUB International. "The monthly rate for a temporary rental can be double the monthly rate in a one-year lease. Also, if you have to turn on the water, electricity, phone, cable TV or other utilities, you usually have to pay deposits. These expenses add up."

Beefing up your coverage

Knowing these things, how long would your coverage sustain you?

If the figures don't satisfy you, ask your insurance agent about coverage based on "actual loss sustained" (ALS), which provides unlimited additional-living-expense coverage for a limited period. Those periods vary by state. This is a common alternative to the typical 20 percent ALE coverage, requiring a nominal increase in your insurance premium. In addition, Kessler says, some insurers offer ALS coverage with no dollar limit and no time limit.

Why upgrade your ALE coverage? Because reaching your limit and having to shoulder these added expenses is the last thing you want when you're displaced from your home.

"People think things will never happen to them, but things do happen," Liberty Mutual's Allred says. "This is why you have insurance."

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