Additional Living Expenses: A Critical Recovery Tool After Disasters

ALE Basics

When you read the policy language, this coverage seems relatively straightforward: It offers to pay those "additional" expenses incurred following a loss until the repaired or replacement home is habitable to maintain the insured's usual standard of living. This simple coverage grant is presented in two paragraphs without defining key terms (i.e., additional expenses, normal standard of living, and shortest replacement time). This coverage provides an indirect benefit, which assumes that the insured residence was damaged or destroyed by an insured peril. This broad language provides wide discretion for claims handlers and survivors to interpret what these terms mean to each individual and, to some extent, each catastrophe.

This flexibility is essential for good claim resolution, but it can lead to unintended consequences if the parties cannot agree on an acceptable interpretation of these terms. In many cases, the discussion of this benefit will occur before most other parts of the claim, when the claimants are under the most stress and may not fully understand the basic elements of this coverage and how to document these additional costs. So, the simpler you can make the process and the benefit for the insured, the better for a positive relationship throughout the claim.

Takeaway: ALE claims are more consequential in natural catastrophe claims and often become more contentious because they are more complex to explain in the early stages of the claim relationship and often by less-experienced claim personnel.

ALE Limits

The traditional homeowners insurance policy Coverage D is typically 30 percent or some other percentage of the dwelling limit. This coverage approach may provide a greater limit than some of the newer policies that offer actual loss-sustained coverage, which has a set time limit, generally for a year. Still, this time limit can be increased, and some states mandate offering more extended time frames.

What is the best limit? Sadly, there are few tools to help agents evaluate their customers' exposure for ALE losses. For many years, agents used the general guideline that a home could be rebuilt in less than a year. This standard does not work in a post-natural-disaster claim setting where the rebuild times can exceed a 2-year limit. Like other property limits, you should offer your customers alternate limits at each renewal and let them decide on their sufficiency. You may also want to propose a more traditional Coverage D limit with the percentage limit to help bridge any delays for a rebuild.

Catastrophe Replacement Shelter Priorities and Realities

Perhaps the first impactful decision after the catastrophe is to find shelter for the displaced survivor. This often occurs in two phases: agreeing to arrange for shelter in a local hotel while searching for more permanent lodging and actually locating a more permanent shelter. This seems like a straightforward process, but the realities that exist after a catastrophe are much more complex. At this point, the "demand surge" reality is very real. The IRMI Glossary defines "demand surge" as follows.

Demand surge is the increase in the cost of repair or replacement of damaged property that may occur following a large-scale disaster when many individuals and organizations vie for a limited supply of labor and materials needed for repairs.

While lodging is a service, it is impacted by the surge of demand following a disaster. There might be available rooms for disasters near a metropolitan area, but they might not be geographically accessible to the survivor's job or school needs. For disasters in more rural areas, you might not have any rooms available or close to their former community, where they must commute during reconstruction. A partial answer to both locales is to stay with a relative or friend during this initial shelter transition, which is a short-term option but not always available.

The hunt for long-term shelter options has many of the same parameters as finding short-term transitional lodging. In the real estate world, there are very few locations in this country with an excess supply of housing units available for rent or purchase at the scale needed to accommodate the catastrophe's displaced families, except in isolated, more minor cases. Let's consider the impacts of the following wildfire incidents.

• Waldo Canyon Fire (2012). 347 homes were lost. Between friends, relatives, and rental inventories, this wildfire was less impacted by the limited housing supply. Many observers consider the 2008 recession to have created a larger-than-normal supply of rental homes.
• Black Forest Fire (2013). 509 homes were lost. Even though it was in the Colorado Springs metropolitan area, the Waldo Canyon survivors had already used the excess housing capacity.
• Marshall Fire (2021). Almost 1,100 homes were destroyed. During the pandemic, this fire was in the Denver metropolitan area, which had a very heated housing market, so finding alternative housing for these survivors was also very challenging. In addition, the neighborhoods that burned were newer, with younger families who wanted to keep their school-aged children in their former schools.
• Lahaina Fire (2023). This fire destroyed almost 2,000 homes. There were very few options for longer-term housing on this island.
• Los Angeles Fires (2025). Depending on the source of information, almost 17,000 structures, mostly homes, were lost. Although the LA metropolitan area is large, there are very few options for the magnitude of temporary housing needed.

As the above examples demonstrate, this critical claim component is usually immediately confronted with the reality of the marketplace over which insurers have little control and few other alternatives. In addition, this limited supply drives claim costs significantly. Fortunately, most insurers use specialized vendors to help them with this process, which allows them to save critical personnel time to address their other claim tasks.

Another component of shelter ALE is renting furnishings, such as furniture and appliances, to make the home habitable. Although these costs are closely associated with personal property coverage, furnishing temporary housing is usually handled as an ALE and often done through a vendor. This helps to get the survivor into more comfortable housing as soon as possible after the loss. The shelter and furnishing rents continue for as long as the insured is displaced from their insured location or until their ALE limit is exhausted.

How are these costs paid? They are usually paid monthly, either directly to the vendor or the insured. The convenience of direct pay helps the insured conserve time for other recovery tasks. However, if the insureds want to be in control of their expenses, that certainly works. This is the methodology used by most companies to handle these housing-related claims. As you can imagine, there are many exceptions to this general rule. These cases are negotiated separately with those insureds who do not follow this basic model. Another common situation is arranging to pay an agreed rent to a family member or friend while the survivor is displaced. This practice is more common for single survivors and not couples or families.

This early claim process may not seem like a big deal for many, but its importance cannot be overemphasized. It is a crucial first step in the long recovery ahead, which, if handled with empathy and dispatch, will create a more positive relationship between the survivors and their insurance claims people.

Food Considerations

Until the insured is settled into a temporary facility with cooking capabilities, claims personnel will usually work with the insured to calculate their basic pre-loss food expenses and deduct this amount from the initial food expenditures at restaurants. A key element of ALE coverage is carefully accounting for all eligible costs, so insureds must keep all such receipts and present them to the insurer for reimbursement. Some insurers negotiate a per-diem allowance for these costs between the loss and getting into their temporary housing. It may cost more, but it can generate goodwill early on.

Mileage Reimbursement

Under this coverage, the additional mileage required to travel to work or take children to school is considered compensable. It does require extensive record-keeping unless the insurer considers payment for the differences between the pre-loss general mileage and actual post-loss mileage, which is generally very consistent. Another standard mileage cost is the recovery meetings the insured must attend during the recovery. The mileage reimbursement would occur on some agreed-upon schedule until their former home is rebuilt or a replacement home is found.

Determining Additional Living Expenses

This coverage is unique because it is excess coverage. This distinction is necessary so that everyone understands it as early in the claim as possible to prevent future misunderstandings. Since it is not defined in the policy, its usage is flexible, based on the reasonable faith efforts of the survivor and adjuster to allocate the many costs associated with catastrophe claims properly. To assist in this endeavor, each should understand that such expenses are additional and related to the customer's everyday living costs.

Here are three examples of uncovered expenses.

• Because the company required a comprehensive inventory of all destroyed personal property, the insured submitted a receipt for the cost of a computer printer. This is a claim expense and replaces personal property; it's not ALE.
• The insured incurred additional fees for architects' and engineers' fees to get a building permit. While it is an extra fee, it is not a living expense. These fees are covered by Coverage A (Dwelling).
• Because of the increased commute times to pick up the children, an insured submitted twice-daily coffee expenses. Since they had a replacement coffee maker, this was not considered an additional living expense.

Real-World ALE

This article has described the usual and customary application of ALE. In the aftermath of a significant disaster, claims handlers will face many different variations of applying ALE because each survivor's post-loss journey is different. In addition, certain claim situations will present themselves, requiring more effort to find unique solutions for the special needs of their displaced customers. Here are a few examples of different circumstances that will require more creative benefits.

• If an insured is disabled, their temporary housing options are likely to be more restricted and require some additional expenses to accommodate their special needs.
• If an insured is a caregiver for another family member, similar consideration may be necessary to find a place to provide this care during their temporary relocation.
• Some families may have a special-needs child requiring additional expenses to modify their temporary location.
• Pets can create additional expenses because many lodging or rental properties do not allow them. This may create additional short-term expenses to house the pets separately until a longer-term housing solution is found. In some cases, you may find a cow, horse, llama, sheep, or pig housed at the insured's residence. To find an alternative shelter for the family and these animals at a long-term rental may create an even more challenging ALE scenario.
• Many survivors ran in-home businesses. In the virtual world, many of these businesses suffer minimal disruption due to their relocation. ALE does not provide for any loss of business income. In-home companies that might require some additional expenses to continue at their relocated premises include a childcare business or a piano teacher.

As claims handlers experience natural catastrophe claims, they will encounter many more unique scenarios requiring a flexible and creative solution. Such situations create significant opportunities to innovate and bond with the customer.

ALE Duration

The basic policy covers the shortest time required to repair or replace the damage or for your household to settle in another location. While this language seems relatively straightforward, its application in a disaster is sometimes challenging because of the many external factors over which the insured has no control.

In some underinsured cases, there can be some initial delays in finding additional funding to rebuild their homes, which can also extend this time frame. The biggest hurdle for delayed reconstruction is either the exhaustion of the policy limit or the period during which ALE benefits are paid. This factor is becoming more common in larger wildfire events, so it is essential to carefully evaluate the potential ALE limit during the initial insurance policy sale or renewal transaction. The issue of habitability is usually not an issue for total-loss homes.

Other Loss of Use (Coverage D) Benefits

There are two other components of coverage offered by Coverage D besides ALE.

• Fair rental value
• Civil authority prohibits use

Very few single-family homes have a loss of rent exposure. Certainly, duplex, triplex, or fourplexes would. Like ALE, reimbursing for the loss of rents would continue for the shortest period between the loss and when the home again becomes habitable. It would not cover a lost rental if the renter had found another place and did not take occupancy when the house was finished, nor would there be any coverage for the renter during the replacement. The insured would need to provide either leases or tax records to show the amount of rent in the prior year to justify the claim. In those rare instances where a tenant may be in a single-family home, the customer would need to provide similar evidence to justify the rental income loss.

The "civil authority prohibits use" coverage may apply to some homeowners after a wildfire disaster. When a local authority prohibits access to a neighborhood after a loss due to safety reasons and a home is not destroyed, this coverage would reimburse up to 2 weeks for temporary housing and additional expenses. In some cases, this may also apply to the evacuated area before the loss if there was an evacuation order and the area eventually suffered a covered loss.

Partial Wildfire Smoke Claims

In the majority of these partial smoke claims, there are few problems associated with ALE. Because these claims have a short repair time frame, the insurer usually offers temporary housing in a longer-term residential inn with limited food preparation capabilities. When the home is finally cleaned, there is typically no contention on its habitability, and the ALE benefits end. However, some homes have great contention over the amount of smoke mitigation work necessary, especially for insureds with compromised immune systems or respiratory issues, where the duration can become very contentious.

An earlier commentary, "Wildfire Recovery: The Critical Role of Debris Removal Coverage," discussed the challenges of specific partial smoke claims and the absence of medical and restoration standards to determine the extent of damage and length of ALE. These cases can become quite contentious, so assigning seasoned, specialized claim personnel to handle this situation is critical.

Takeaways

In each wildfire for which I have served on the recovery team, I learned that ALE coverage is critical to ensuring a smooth transition after a major catastrophe and creating a positive environment for handling the other claim components. As these disasters increase in scale, ALE's importance grows and becomes more challenging as recovery times increase. This coverage seems less important for many seasoned insurance professionals who are used to everyday insurance claims. However, this reality changes in the case of extreme natural catastrophe claims.

Here are five takeaways.

• Even though it is relatively "simple" coverage, it is important that insureds understand that its benefits are prepared for excess expenses.
• The claims process needs to be streamlined to provide the best experience possible for disaster survivors.
• Best practices and applications should validate a survivor's expectation of an insurer's duty to establish a good working relationship and excellent delivery of benefits promised in the policy.
• Demand surge is a critical reality over which insurers and survivors have little or no control, except seeking creative ways to minimize costs and customer impact.
• We need to recognize that the recovery durations will continue to increase, which runs the risk of exhausting the traditional limits of coverage provided by the homeowner's policies.

Perhaps the biggest takeaway from this article is the need to assess each homeowner's indirect loss exposure regularly and provide options to determine the correct amount of coverage that they need for this vital protection.