What Is Loss of Use Insurance?

Loss of use insurance is typically part of a larger insurance package that provides coverage in an event in which some item cannot be used. This type of clause for workplace insurance, for example, often refers to employees and the potential for them to be unable to use a body part due to workplace injury. Loss of use insurance is often a clause or optional part of homeowner’s insurance, which reimburses an insured party if a house cannot be used due to an accident. Such insurance can include an additional clause providing further compensation for part of a home that was rented out.

The primary idea behind loss of use insurance is that something may not be completely destroyed or lost, but cannot reasonable be used. For example, if an employee severely injures his or her hand and cannot use it for several weeks, then he or she has experienced a loss of use. Such injuries may be covered under workplace loss of use insurance, in which the employer can file a claim due to this loss. Physical items can be similarly insured, so that the loss of use of a piece of construction equipment is covered even if the equipment is not permanently destroyed.

Homeowner insurance often includes a clause or an option for additional loss of use insurance, which protects a homeowner from various events. A chemical spill in a neighborhood, for example, might not physically damage a house but could make it unusable until the spill is cleaned up. A homeowner may be able to file a claim on loss of use insurance to receive compensation. This usually takes the form of reimbursement for expenses while the homeowner is renting another place to live until the home is once again useable.

Certain limitations may be placed on loss of use insurance, such as a cap on the amount of time that a homeowner can continue to claim benefits on a policy. Many plans also have a restriction on the total amount that can be paid out by this coverage for any one claim, often in the amount of 20% of the total coverage value of the house. Some loss of use insurance can also include a clause allowing for “fair rental value” to be paid on a claim. This option is used for part of a house that is rented out for additional revenue. If the rented section of a house is unusable, then insurance may pay out an amount equal to the lost rent during this time.