Are You Covered for This Housing Cost?

The devastating fires in Los Angeles County are just the latest reminder that climate-related disasters can force us from our homes.

For peace of mind, I hope you will seriously follow my advice for what you can do right now to make sure you will be able to afford temporary housing in the event of any climate disaster, or just a straight-up house fire caused by a kitchen grease fire or faulty wiring, causes damage.

Step 1: Can you lean on your emergency savings fund? Disasters are a big reason why I never have liked the advice to keep an emergency savings fund that can cover up to three months of living expenses. That’s not likely enough. As you know, my advice is to keep working toward building an emergency savings fund that can cover up to a year of living expenses. That’s how you can sleep well now, and hopefully sleep better if you are temporarily forced from your home.

Step 2: If you own your home, and have homeowner’s insurance, you may be eligible for a payout to help you cover expenses if you have to move to temporary housing.

Pull out your policy and look for the details on Coverage D, which refers to Additional Living Expenses (ALE). Coverage D can provide funds to cover renting a temporary home or help cover a stay at a hotel, and other costs associated with being displaced from your home.

Typically Coverage D is a percentage of your Coverage A - Dwelling Limit. (We went over Dwelling Limit coverage last week, you can get that refresher here.)

Part D coverage of your homeowner’s insurance may be 20% to 30% of Coverage A. For example, if your Coverage A limit is $300,000 and you have 20% Coverage D, your maximum payout for temporary housing costs would be $60,000. ($300,000 x .20 = $60,000).You can have more/less coverage based on your needs. Just make sure you understand your current coverage and then contact your insurer if you want to change the level of protection.

You also want to check how long those payouts will continue. It may range from 12 months to 36 months.

Be aware, that Part D will not cover your mortgage payment. And to be clear, even if your home is destroyed, you are responsible for the remaining balance of your mortgage. In fact, when there is a mortgage, any claims paid will likely be made jointly to the homeowner and lender. Depending on whether you want to rebuild or not, you will then negotiate with the lender on how the proceeds are used. Even if you want to walk away and restart somewhere else, you must first pay off the mortgage balance.