How to Understand Your Homeowner’s Insurance Policy: (ALE) Additional Living Expenses

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In 2003, my house was one of thousands of houses that burned to the ground in San Diego’s disastrous Cedar fire. Because of this, along with other fire survivors, I wound up learning more about homeowner’s insurance policies than I cared to. The main lesson that most of us learned: almost all homeowner policy holders are underinsured.

Note that homeowner insurance policies are divided into pools of money. In one of the beginning dealings with my insurance company after the fire, I discovered that the first and most ongoing of our homeowner insurance policy pools of money was Section D (for most coverages), or the ALE (an acronym for “Additional Living Expenses”) pool.

ALE covers your most immediate living expenses after a fire, including food and shelter costs. Thankfully our insurance company’s adjuster (to whom we gave a strongly mixed review) was able to give us a check upfront.

But ALE is more than your immediate after-disaster living expenses. It’s best to be knowledgeable about the scope of what Additional Living Expenses covers.

Difficulty: Moderately Challenging

Instructions

Things You'll Need:

A copy of your homeowner's insurance policy
A reputable insurance agent
A reputable real estate appraiser

How to Understand Your Homeowner’s Insurance Policy: (ALE) Additional Living Expenses

Step 1

Contact your homeowner’s insurance company agent. Ask your agent to explain what is and isn’t considered an Additional Living Expense. Most important, find out how long ALE will cover rent for temporary housing in the event of a disaster while your house is being rebuilt. In many policies, rent coverage only lasts for a year. The insurance claim and home rebuilding process, according to experts like George Kehrer of CareHelp, usually takes a minimum of two years.

Also, ask your agent if you can add a Coverage D rider to cover mortgage payments during this claim and rebuilding period. Yes, you’ll still have to make mortgage payments even though your home has been reduced to rubble.

Luckily, we were fortunate to have such a rider on our policy and our mortgage payments were covered for one year.
Step 2

We were also lucky enough to immediately find housing in familiar comfortable surroundings, our old apartment complex in the Ocean Beach section of San Diego where we still had good friends and good vibes. Although we were happy to get back to our old neighborhood, we later found out that our temporary apartment’s rent was at least one-third of our rent ALE reimbursement allowance as determined by the fair rental value of our house that burned down.

While this may seem like being overcautious, besides contacting your agent, also contact a reputable real estate appraiser to determine the fair rental value of your home. This appraisal should be a figure that you keep in your head for a time when you may have to relocate after a disaster.
Step 3

Keep some copies of records of monthly bills from utilities companies, banks and credit card companies in a remote location like a bank safety deposit box. Your adjuster will be doling out Additional Living Expenses according to your normal standard of living. These records will be more than helpful as evidence for your adjuster’s determination what your normal standard of living was when you were living in your home.