Coverage for additional living expenses in home insurance – Forbes Advisor
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There is a raging battle for “ALE” and it has nothing to do with beer. ALE stands for Additional Living Expense Coverage. This is the money you will need to live elsewhere if you are forced to leave your home due to a fire or any disaster covered by your home insurance policy.
FTA coverage covers expenses beyond your “normal” expenses at home. It is supposed to reimburse you for the additional costs of maintaining the lifestyle you had before. This may include hotel bills, restaurant meals, emergency clothing, laundry service, pet boarding, storage, furniture rental for items you are used to buying. ‘have, and much more.
The FTA is usually found in the “loss of use” section of a Home Insurance Politics.
California is the epicenter of this battlefield. He pits dispossessed homeowners against insurers they see as tight on paying the FTA at a time when the underworld has devastated the Golden State.
The numbers tell the story, but don’t describe the angst: 8,600 forest fires this year alone; 10,000 “structures” – mostly houses – destroyed; 4.3 million acres of ash. What about the new homeless? More than 102,000 people evacuated due to fires in the Los Angeles area alone in late October.
“People who lose their homes have enough worry without the insurance company dragging their feet and without delays,” says California State Senator Bill Dodd, who represents Burnt Wine County near Napa . “They have paid their premiums and need to be healed.”
2020 has been California’s worst year for fires, according to CoreLogic, a real estate data analysis company. And 2017 and 2018 had set previous records. That leaves thousands of Californians living in trailers, motels, or with relatives, while the state experiences an endless shortage of contractors and supplies like lumber and cement.
Homeowners wishing to return home face the removal of debris and the cumbersome bureaucratic process of obtaining building permits at a time when their computers and documents may be missing.
Money to rebuild in this high-priced state – where the average home sells for $ 700,000 and the cost of rebuilding has risen nearly 10% in the past year – is also a challenge unless the police Insurance does not specifically include “extended” or “warranty” replacement value of the home structure.
On November 5, 2020, California Insurance Commissioner Ricardo Lara issued a mandatory one-year moratorium that prevents insurance companies from not renewing or canceling residential property insurance policies. This is expected to help around 2.1 million policyholders who have been affected by the 2020 wildfire season.
This witch’s brew haunts both government and insurers
It’s a witchcraft brew that haunts both the state government and insurance companies. Last year angry former homeowners took to the streets holding up signs with malicious slogans blaming home insurers such as Allstate, Nationwide and State Farm because their two-year FTA limit expired after the fires of North Bay, California in 2017.
The state is on their side. . . kind of. A law sponsored by State Senator Dodd now requires property and casualty insurers doing business in California to pay homeowners’ living expenses for at least three years. But the law is not retroactive and leaves many furious homeless.
What is a “normal standard of living”?
So how much money, for how long and under what circumstances will your home insurance company pay when you are uprooted and unable to return home?
Many standard home insurance policies, such as the one offered by NJM Insurance, have an indefinite term “payment will be for the shortest time necessary to repair the damage.” . . or settle elsewhere.
The amount of the FTA is supposed to be sufficient so that “your household can maintain its normal standard of living”. Renters’ policies can also cover the FTA.
But don’t expect unlimited stay at the Four Seasons. The owner and the insurer will negotiate exactly what the latter will cover.
“The criterion is a type of house or apartment similar to yours,” says Janet Ruiz, spokesperson for the California-based Insurance Information Institute.
The insurance company is likely to set a specific time frame for completion of repairs, so don’t expect three years instead of the usual two years in places where contractors and supplies are available.
Home insurance policies often set time limits or money limits on the FTA in the contract and sometimes both. “Some specialist operators have no time or money limit for high net worth clients, but only a few offer unlimited FTA,” Ruiz explains.
What if your house is only partially damaged? “For these victims, the problem is whether it is safe to rehabilitate,” said Amy Bach, executive director of San Francisco-based United Policyholders, a policyholder rights group. There may be smoke residue, damage to the walls, or hazardous materials like asbestos that have been exposed by the fire.
“You have to know if your property has been cleaned well or if your insurer is trying to take a shortcut,” she warns.
Additional living expenses are limited for temporary evacuations
There are limits on the FTA in cases where your house is not damaged but your entire community has been forced to evacuate. This is the situation that hundreds of thousands of people faced in California due to the firestorms, along with the power outages and water shortages that followed. In this case, the state asked insurers to allow these displaced homeowners to receive additional coverage for the FTA rather than the normal two weeks contained in most policies.
This could happen anywhere there are high winds, or in the suburbs where forests extend into backyards. You will find this coverage in the “Civil authority prohibits the use” section of the insurance contract. But a simple loss of utilities, such as an ice storm knocking down a power line or a planned power outage, “would not trigger the FTA,” says Ruiz.
Other limits on additional living expenses
So what else will the FTA not cover? The answer: a lot. With floods haunting the Gulf Coast and earthquakes rocking the West Coast, don’t expect help from your average home insurance policy.
The FTA is only activated for disasters that are “covered risks”. An earthquake is not covered by most home insurance, so additional living expenses are not covered after the damage caused by the earthquake. You will need to purchase a policy or rider that is separate from your regular insurance coverage, such as earthquake insurance from the California Earthquake Authority.
But hurricane winds would qualify for FTA home insurance coverage.
The most glaring omission for coverage of additional living expenses is the flooding. The Federal Emergency Management Agency (FEMA) says 90% of natural disasters in this country involve flooding and the chances are twice as high of being drowned rather than burned. Even a homeowner in parched California is more likely to face a flood than to flee a wildfire.
Although it is easy to buy flood insurance FEMA, the FTA is not given to flood victims. And there are limits to the amount of FEMA coverage: $ 250,000 for the house itself, and nothing for living expenses while it’s under repair. Private flood insurance policies can include FTA, but you must research them or add a private flood policy to your FEMA coverage for an additional cost.
Check your home insurance policy for your ALE coverage limit. You can increase the limit if you think it wouldn’t be enough, especially after you’ve added up hotel bills, meals, and any other potential extra costs if you can’t live at home.