Real Estate

Who Pays for the Rental My Family Is in While Our House Is Being Repaired Due to Damage?

By Ilona Bray, J.D., University of Washington Law School
What happens when homeowners need to move out while repairs and reconstruction on the house are underway?

When a house is damaged so badly that it can no longer be lived in—for example, due to smoke or fire, flooding, or a major weather event, which affects essential rooms such as the kitchen, bedrooms, or bathroom—it sometimes becomes necessary for the homeowners to move out while repairs and reconstruction are underway. Depending on how long such work will take, the homeowners might move into a hotel or an actual apartment or house rental. Who foots the bill for this?

The answer depends on whether you have homeowners' insurance coverage and what, exactly, your policy says about covering living expenses.

If you have no insurance coverage at all, then of course you are on your own to cover living expenses while your house is being worked on. Most homeowners realize that, even if they're not paying a mortgage and thus must comply with the lender's requirement to insure the house, purchasing annual insurance is a worthwhile investment, helping to protect against the risk of major damage.

If you do have insurance coverage, take a look at your policy. First, you'll need to make sure the damage itself is covered by your insurance. If not, your insurer won't cover your rental or other living expenses, either. If the property damage is covered by your policy, then you should receive coverage for temporary housing while your home is being made livable, as well.

Next, look for the section covering living expenses. It may be titled "loss of use" or “additional living expenses” or “Part D” coverage. But don't expect a blank check.

For one thing, the standard policy contains an exclusion for situations where the reason the home became inaccessible was an order by a civil authority or government (most likely an evacuation order), which was triggered by nearby natural disaster or other damage. The rationale is that homeowners' insurance is meant to cover damage to a house and property, and evacuation orders may affect people whose houses aren't, in the end, damaged. Such people cannot, in most cases, turn to their insurer for help—though they may receive a loss of use allotment if damage occurred to neighboring homes.

When you first put in your claim for damage and living expense coverage, expect your insurance company to ask you to report on and document your normal living expenses. The purpose is to set a baseline: This loss of use insurance is meant to cover EXTRA expenses, over and above what it normally costs to maintain you at the lifestyle you had before. It's not, for instance, meant to allow you to check into a luxury hotel for a few months.

You will likely need to find accommodations that are roughly equivalent, in square footage and otherwise, to what you had before, whether that's in a house, apartment, hotel, or some other living space (depending in part on availability). Your insurance company may actually offer you help in finding temporary housing.

The next thing to factor in is that your policy will likely cap how much you can spend (or be reimbursed) for these extra living expenses. This will likely be set as either a percentage of the insurance limit on your dwelling (such as 20%) or a flat dollar amount.

The amount you receive may also be limited by your insurance company's judgment as to how much time you really need for a task—for example, if your house is completely destroyed, how much time it should realistically take you to find a new place to live. If your insurance company thinks you are behind any delay to moving back into your house, it may refuse to continue covering your living expenses.

Call your insurance broker or representative with any additional questions—or, if you feel the company isn't abiding by the terms of your coverage, consult an attorney with expertise in insurance matters.

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