A homeowner's residence is rendered uninhabitable after a covered fire. The homeowner incurs $2,000 in hotel expenses and $1,500 in additional food costs while their home is being repaired. Their normal monthly living expenses for food and housing are $1,000. How much will the policy pay under Coverage D - Loss of Use, assuming these costs are within policy limits and no deductible applies to this coverage?
- A$2,500
- B$2,000
- C$1,500
- D$3,500
Show answer & explanationAnswer & explanation
Correct answer: A. $2,500
Coverage D - Loss of Use, also known as Additional Living Expenses (ALE), covers the necessary increase in living expenses incurred by the insured to maintain their normal standard of living while their dwelling is uninhabitable due to a covered loss. The normal living expenses (e.g., $1,000 for food and housing) are not covered. The additional expenses are $2,000 (hotel) + $1,500 (additional food) = $3,500. Then subtract the normal food and housing costs of $1,000. So the payable amount is $3,500 - $1,000 = $2,500.
Why the other options are wrong
- B. This is incorrect; it only includes the hotel expenses and does not properly account for additional food costs or normal expenses.
- C. This is incorrect; it only accounts for the additional food costs and does not include hotel expenses or subtract normal expenses.
- D. This is incorrect; it includes the total additional expenses without subtracting normal living costs.
Coverage D - Loss of Use (Additional Living Expenses)
A homeowners policy coverage that pays for the necessary increase in living expenses incurred by the insured to maintain their normal standard of living when their dwelling becomes uninhabitable due to a covered loss.
- Covers 'additional' expenses, not normal living expenses.
- Examples include hotel stays, restaurant meals above normal, laundry services.
- Coverage typically lasts for the shortest time required to repair or for the insured to relocate.
Memory trick: When your home's out of order, 'D' covers the 'Difference' in your living border!