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All Homeowners Policies Are NOT Created Equal

All homeowners policies include Additional Living Expense coverage, also known as ALE or Loss of Use. This coverage is meant to cover the cost of “living elsewhere” if a claim is filed because the home sustains damage and can no longer be lived in. It might only take a few months for the repairs to […]



All homeowners policies include Additional Living Expense coverage, also known as ALE or Loss of Use.

This coverage is meant to cover the cost of “living elsewhere” if a claim is filed because the home sustains damage and can no longer be lived in. It might only take a few months for the repairs to a home to be made, but if the home has significant damage or is a complete loss, it could take a year or two – depending on where the home is located and what repairs are needed.

The typical payments most homeowners receive when they are forced to live elsewhere are for:

  • Rent (and associated costs of deposits & cleaning) for temporary housing (initially a hotel – then an apartment, condo or home). The mortgage payment is still being made on the damaged or destroyed home, so this rent and associated costs are “additional” costs to live.
  • Moving costs incurred to move (to and from); including moving company/van, boxes, packing materials, etc.
  • Meals eaten and mileage reimbursement when out shopping for: temporary housing, replacement of personal property items damaged/destroyed, new flooring, fixtures and appliances for home being rebuilt, etc.
  • Pet boarding costs
  • Costs associated with pictures, printing, photocopying and mailing (to insurance company and otherwise)
  • Parking (hotel, meter and permit)

As the title of this article states, ALL homeowners insurance polices are NOT created equal in terms of ALE coverage. There are two parts to ALE coverage and these are:

Limitation of Dollar Amount: Many insurance companies “cap” how much they will pay a homeowner to live elsewhere; typically it is 20% of the dwelling limit of a policy. For instance, if the policy insures a home for $500,000, the most an insurance company will pay is $100,000 for all costs associated with living elsewhere (again initially a hotel and then a more permanent residence while the home is being rebuilt).

Limitation of Time: Many insurance companies “cap” how long they will pay for a homeowner to live elsewhere; typically it is 12 or 24 months from the date of loss. The face of the policy may state ALS (Actual Loss Sustained) but the fine print of the policy places a time limit.

Having a “cap” on the dollar amount or the time might not seem like too big of deal, unless you live in CERTAIN cities. Because many parts of California have a higher than average cost of living, especially in terms of rents in places such as San Francisco and surrounding Bay Area cities, buying a policy with a “cap” can be a real problem. In addition, the limitation of time the insurance company will pay for a homeowner to live elsewhere isn’t realistic in many cities; there may be delays in construction beyond the control of the homeowner or insurance company.

Fortunately, there is an alternative. As stated, many insurance companies limit the dollar amount and time that they will pay for ALE. There are a few insurance companies who sell homeowners insurance policies with NO dollar limit/NO time limit coverage for ALE.

Two of the most reputable of these are Encompass Insurance (ELITE policy) and ACE Insurance (Platinum policy). While it’s true that some insurance companies state they are “luxury home specialist”, they fall short by limiting ALE to 50%. This likely won’t be enough coverage in many instances due to the time it takes to rebuild a home being lengthy, such as the case of homes in San Francisco.

A recent conversation with Malcolm Kaufman of Alain Pinel, one of San Francisco’s most knowledgeable and seasoned Realtors with a solid background in economics and finance, confirmed what many people already suspected: the time to rebuild a home in San Francisco often exceeds 24 months.

Malcolm shared that the reason for the delay in San Francisco is the fact that it can take several phone calls and weeks to schedule an appointment with a contractor, engineer, architect and such. These are busy professionals and their expertise in “building in the city” is crucial. Pulling in contractors and other experts from areas outside San Francisco can be a poor decision. San Francisco is unique and being familiar with the rebuilding process, permits, environmental, neighborhood guidelines and more is very important.

If you live in the Bay Area or any city with a higher than average cost of living, purchasing a homeowners policy from Encompass or ACE is recommended. Without an Encompass or ACE policy, you may find yourself paying out-of-pocket expenses to live, possibly for a year or more, while your home is being rebuilt.

Again, ALL homeowners policies are NOT created equal. Knowing ahead of time what your ALE coverage is and possibly changing insurance companies to a company who will better meet your needs, should the unthinkable happen, can give you peace-of-mind and potentially save you tens of thousands of dollars.

For more information about Homeowners Insurance, please contact Ramona Johanneson at rjohanneson@fp-ins.com or by calling415-493-2502.