Additional Living Expenses (ALE) coverage provides funds for temporary housing and increased living expenses if a home is uninhabitable due to a covered loss. However, ALE limits may be too low to cover extended rebuilding timeframes following a catastrophic event. Homeowners should consider ALE limits in relation to rebuilding costs and the potential for materials and housing shortages after disasters. For example, some California earthquake policies only provide $1,500 in ALE coverage, which may be insufficient.

1. A Fine Line June 2012
Vacant Versus Unoccupied Homes
With the real estate market still in a position of
recovery, it is important for all homeowners who
have homes on the market to understand the
possible changes in your policy terms and
conditions.
Most, if not all, homeowner insurance policies
contain language regarding vacant and/or
unoccupied homes. After a stated period of time
there can be a diminution in covered losses and an
increase in the deductible amount for any covered
losses.
One court definition of what constitutes a vacant home reads, “if the house does not
contain enough furniture for a resident to reasonably live there”. My interpretation of this
would be that as long as there are a few chairs, a bed and some appliances, the house
should not be considered vacant.
One insurance company policy describes a house that is vacant as, “a house is vacant if it
has been substantially empty of furnishings and contents for more than 30 days at the
time of loss and the company was not previously notified. The 30 day timeframe can vary
and I have also seen policy wording allowing up to 60 days.
Losses for burglary, vandalism, burst plumbing and heating pipes will all be effected due
to the vacancy clause. Deductibles for covered losses, fire, wind etc. can go from a set
dollar amount of $1,000 to a percentage of the home limit of as high as 5%. On a
$1,000,000 insured home this would impose a deductible for covered losses of $50,000.
In order to prevent any of these penalties from effecting your coverage, leave enough
contents to nullify the “substantially empty” wording. If leaving your property behind is not
an option, consider renting furniture or have the realtor “stage” the home for resale. As
mentioned above the solution may be as simple as notifying the insurance company. This
will certainly generate a “premium surcharge”. This could be as high as 25% of the
annual premium. It may also cause the company to non-renew the policy.
Remember vacant and unoccupied are two different situations. Vacation homes are
unoccupied and still have their share of loss potential. The best risk management
technique is to understand and discuss these policy terms and options with your
insurance broker or agent who can help you decide which course of action is best.
Are you risking more than you can afford to lose?

2. Additional Living Expenses (ALE) –
I have been watching the forest fire reports from
Colorado, New Mexico and now Utah, since I
have clients whose home could be in danger. As
I watch the homes already destroyed and
interviews with the owners I am struck by the
commitment these folks have on rebuilding. As I
have mentioned in previous newsletters the
rebuilding costs may exceed the policy limits and
result in significant out of pocket expenses for the
homeowners.
The possibility of being underinsured for the replacement value of the home can be exasperated by
Coverage D, Additional Living Expenses afforded on the policy.
All homeowner policies provide coverage for Additional Living Expenses, Coverage D on the policy. The limit
can be a percentage of the home value, typically 20 or 30%. It may be stated as “actual loss sustained for 12
consecutive months” as broad as covering reasonable increases in normal living expenses that are
necessary to maintain your household’s usual standard of living. This coverage extends to a reasonable time
required to repair or rebuild and is not limited to the expiration of the policy. Clearly in an era where natural
disasters are almost a common occurrence, this type of ALE is the best of all options.
ALE covers expenses which are in addition to your normal living expenses. In the event of a loss you will
most likely continue to pay your mortgage. ALE covers the cost to rent or lease a residence that
accommodates the lifestyle prior to the loss. If you are paying for utilities at your damaged home, ALE pays
for the utilities at your temporary residence. As a risk management practice it is wise to have given the
possibility of needing temporary housing some thought.
It is important to consider that in a catastrophic situation such as the wildfires, tornados or hurricanes,
materials and labor can be in short supply. This will add to the time it will take to complete necessary repairs.
The costs of temporary housing or hotel rooms may also rise due to supply and demand.
Recently I was counseling a client on earthquake coverage for a home he was considering purchasing in
California. As we discussed the nuances of California properties and the variety of natural catastrophes they
are subject to we began to look closely at the earthquake policies which are offered in the state.
Unlike Flood Insurance in high hazard areas, many California banks do not require earthquake insurance on
homes where they hold mortgages. I called a colleague of mine in San Francisco and he confirmed this,
much to my shock. I have been told by many Californian’s that earthquake coverage is not purchased due to
the outrageous premiums charged. Their hope is the house will catch fire, since the ensuing fire is covered
by the homeowner’s policy. This was all prompted by the $1,500 coverage limitation for Additional Living
Expenses on some of the California Earthquake Policies.
93 Whitehall Road
Pittstown, NJ 08867
Main: 908-713-0223
Cell: 973-865-5723
Fax: 908-762-4790
www.wsriskmgt.com