by Megan Gorman, Forbes
Link to original article here
Across California, the wildfires have been beyond devastating. With the Camp Fire in the north and the Woolsey Fire in the south, it feels like the entire state of California is burning. But as Californians begin to sift through the ash and rebuild, there may be further dark news coming their way: their insurance might not be sufficient.
“Most homeowners focus on dwelling replacement costs,” says Thorndike. “ What’s often overlooked is loss of use coverage. How long will it take to repair or rebuild? Where will we live? What will it cost to rent a home in my community if there’s a catastrophic event like a wildfire?”
The answer for many might be a bit frightening.
What Is Loss of Use?
Loss of Use is a key provision in a homeowner’s policy that provides living expenses to the insured if their home is deemed uninhabitable as the result of a covered peril such as fire or water. It is sometimes called Coverage D and covers expenses including temporary residence, moving costs and transportation among others. In most policies, loss of use is in two parts – additional living expenses and fair rental value – and is limited to a specific time period.
But not all policies are created equal and most homeowners purchase their coverage based on cost, not coverage. So when a fire causes total destruction, the insured might be surprised that temporary living costs are only partially covered. This limitation can create hardships as people try to rebuild and cover those temporary living costs.
Jay Feinman, a professor at Rutgers Law School and Co-Director of the Rutgers Center for Risk and Responsibility, says, “One thing people often misunderstand, and insurers don’t clear up, is how much a policyholder is entitled to.” He notes that “the insured is entitled to ‘maintain their normal standard of living’. That means a three-bedroom house, room for the dog, and other amenities—equivalent to what they had before.”
From a practical standpoint, this means those affected by the fires need to track their receipts and submit them to their insurance company after the expenses are incurred. Most insurance companies provide budget worksheets. Further, part of loss of use is to compensate for additional costs that would not have been incurred but for the loss occurring. For instance, expenses can be submitted for additional commuting expenses or food expenses brought on by the displacement.
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