Additional Living Expense (ALE) Insurance: Meaning and Examples

What Is Additional Living Expense (ALE) Insurance?

Additional living expense (ALE) insurance refers to coverage under a homeowners, condominium owner's, or renters insurance policy that covers the additional costs of living incurred by a policyholder should they be temporarily displaced from their place of residence. Such coverage usually amounts to about 10% to 20% of the insurance that covers the dwelling.

How Additional Living Expense (ALE) Insurance Works

Additional living expense insurance can cover things like the increase in a monthly food bill due to having to eat out at restaurants or even the loss of income that might be incurred if the insured person has been renting out part of their dwelling to a tenant. Essentially, the insurance is intended to cover the insured person for the extra expenses they may incur as a result of being temporarily displaced from their home—say, because of a fire or a flood.

Imagine, as an example, that a tornado renders your house uninhabitable, requiring you and your family to relocate for several months until the home has been repaired. Your ALE coverage helps pay for costs like hotel stays and restaurant meals until you are able to return to your home. Some of the other items provided for under ALE coverage may include:

• Costs of doing laundry: These may be covered if, for example, you have to send your laundry out because you don't have access to a washer and dryer at your temporary home.
• Furniture rental: Costs to rent special items you are accustomed to having may be covered and considered.
• Storage costs: For contents of your home, under special circumstances
• Moving or displacement costs
• Pet boarding

Although the above costs may be covered by ALE, there will always be an assessment of how claimed costs compare to the normal costs of a policyholder's lifestyle. This is because additional living expenses are meant to cover the difference between what you normally pay for things and what you now have to pay due to the fact that you're not living at home.

Calculating ALE Insurance Payout

Pretend that John is a renter living in an apartment. Unfortunately, a severe fire broke out in the building, making his apartment uninhabitable. John had to evacuate and find temporary accommodations while the apartment was under repair. He incurred additional living expenses during this period.

The first step is to identify the additional living expenses that are covered under John's ALE insurance policy. Typically, these may include rent for a temporary rental property, hotel expenses, meals, transportation costs, and laundry expenses. Then, John needs to keep track of all the expenses he incurs during his displacement. Imagine he spent the following over a two-month period:

• Rent for a temporary apartment: $1,800 per month x 2 months = $3,600
• Hotel expenses: $120 per night x 30 nights = $3,600
• Meals and groceries: $40 per day x 60 days = $2,400
• Transportation costs: $200 per month x 2 months = $400
• Laundry expenses: $20 per week x 8 weeks = $160
• Total ALE Expenses: $3,600 + $3,600 + $2,400 + $400 + $160 = $10,160

It's important to note that ALE insurance only covers the additional expenses above what John would normally spend on living expenses. If John's usual monthly living expenses were $1,500, his normal expenses during this time period would have been $3,000. This $3,000 is deducted from the total cost from above to arrive at the actual claim amount.

• Actual ALE Claim Amount: $10,160 - $3,000 = $7,160

ALE Insurance vs. Loss of Use Insurance

Loss of use insurance, sometimes known as Coverage D, is a broader coverage found in homeowners insurance policies. It serves a similar purpose to ALE insurance but applies to homeowners instead of renters.

Loss of use insurance covers the additional living expenses incurred by homeowners when their home becomes uninhabitable due to a covered loss. Examples of such situations (similar to that of ALE insurance) include fire, storm damage, or water damage. Also like ALE insurance, loss of use insurance reimburses the insured for the cost of alternative accommodations, meals, and transportation while the home is under repair.

There are several other differences between ALE insurance and loss of use insurance. Usually, ALE is included as part of a renters insurance policy, while loss of use is included in homeowners insurance policies. And typically, ALE covers just the additional living costs; loss of use may expand to other expenses related to a loss that results from the event. Loss of use insurance may also include a broader set of allowable events more specific to a homeowner.

Common Exclusions from ALE Coverage

Claims against ALE insurance are often restricted to specific types of instances. Very generally speaking, there are a number of cases that are excluded from being an eligible cost.

• Vacancy: ALE coverage typically applies only when the rental property is occupied by the insured. If the rental property was vacant or unoccupied at the time of the covered event leading to displacement, the insurance company may exclude ALE benefits.
• Maintenance/normal wear and tear: ALE insurance is designed to cover the costs of alternative accommodations when the rental becomes uninhabitable due to sudden and unexpected events. It does not cover expenses related to regular maintenance or gradual wear and tear.
• Uninsured events: ALE insurance is subject to the events covered in your renters insurance policy. If the reason for your displacement is caused by an event not covered in your policy, such as an earthquake or flood, you will not be able to make a claim. You may need separate coverage for those events.
• Preventable losses: If the insurance company determines that you could have taken reasonable steps to prevent the loss or minimize additional living expenses, it may deny ALE coverage. For instance, leaving windows open during a storm might impact the claim. This may also include delayed repairs that caused losses.
• Illegal activities: ALE coverage typically does not apply if you are engaging in illegal activities.
• Government action: Some policies exclude coverage for displacement due to government action, such as condemnation or regulatory actions that require you to vacate the property.
• Voluntary displacement: If you voluntarily choose to leave your rental property even though it remains habitable, ALE coverage may not apply. That's because ALE insurance is intended for situations where the dwelling is genuinely uninhabitable due to a covered loss.
  

The Bottom Line

Additional living expense (ALE) insurance is a component of renters insurance that covers the additional living expenses incurred by policyholders when they are temporarily displaced from their rental property due to a covered loss. It reimburses expenses such as temporary housing, meals, and transportation, allowing policyholders to maintain a similar standard of living during the displacement period.