Losing your home to a fire can put you under immediate financial pressure. Despite the tragedy your family has experienced, you still need a place to stay, food to eat, and to keep life normal for work and school. Without the use of your home, you may face additional expenses that can leave a burning hole in your pocket. Fortunately, your home insurance will cover many of these expenses and allow you to maintain your family’s standard of living while your home is rebuilt or repaired.
Your home insurance policy includes a section called Loss of Use or Additional Living Expenses that covers expenses such as:
- Additional food costs;
- Shelter, such as hotel stays and long-term rentals (you do not have to stay with family or friends, and many people who have lost their homes due recommend finding your own space to help you recover); and
- Moving and storage costs.
This part of your insurance does not include ongoing costs such as your mortgage or the normal utility expenses for your home. You may be able to receive assistance from your bank and/or cancel utilities while repairs are being made.
While insurance can reimburse you for these expenses, these costs add up quickly and you have to pay them now. Planning your finances after a house fire can feel overwhelming. What are you supposed to do if you spend more than your insurance company will reimburse? There are two important things you can do to budget appropriately so that you are not left paying out-of-pocket for expenses related to loss of use.
Keep Detailed Records
Keep every receipt related to your living expenses after a fire. Even if you are not certain that it is eligible for insurance coverage, you can learn more about your home insurance policy and determine whether to include it later. Insurance companies will review the claims you put forward and you may have to negotiate how your expenses are covered.
Invest in a folder, either paper or digital, where you can store all your receipts and track all your expenses, including rent, hotel stays, takeout, groceries, gas, laundry services, and other expenses you would not be incurring if you were living in your home. You will submit these receipts to the insurance adjuster working on your file for your insurance company.
Understand Your ALE Coverage
As you create your budget for living expenses during home repairs, there are two key things to keep in mind:
- The limits on your Additional Living Expenses Coverage; and
- The fact that your insurance coverage only covers additional
Remember your coverage limit as you look for a rental unit for your family to stay in while repairs are completed on your home. Your insurance coverage is meant to maintain your normal standard of living despite the loss of use of your home, so you should be able to afford a comparably-sized rental until you are ready to move back into your home. Check your coverage limits on your Declaration Pages.
Your home insurance policy is also only responsible for expenses above and beyond your normal expenditure. This is relevant for expenses you would incur anyway, including food or gas. If you have to travel further for work or rely on takeout instead of groceries because you do not have access to a kitchen, the difference between what you spend and what you would have spent while living at home is the amount that will be covered.
With these two factors in mind, you can begin to plan your finances to recover after a fire.
#1 Finding a Short or Long-Term Rental
Your first few nights or even weeks after a fire are likely to be spent with family or at a hotel. Hotel stays are covered under Additional Living Expenses, although they can be very expensive. You will probably want to find a short or long-term rental in town, close to work and to your kids’ school (or close to family or job opportunities in the event of a wildfire or other mass evacuation order).
Your insurance company has a responsibility to provide coverage that makes it possible for you to maintain the standard of living to which you’ve become accustomed. When it comes to a rental, you should be able to afford similar square-footage and amenities to what you are used to. You will have to be wary of the differences in costs related to location, especially in big cities.
#2 Use Your Emergency Fund
If you have been saving or if you set aside money for an emergency fund, now is the time to use it. Losing your home to a fire is one of one of the most significant emergencies your family could face. Dip into your emergency fund to cover your immediate expenses. If everything goes well with your insurance provider, the money will be reimbursed. The reimbursement process can be lengthy, so be prepared to wait before you receive reimbursement.
#3 Ask for a Cash Advance
What should you do if you do not have an emergency fund or if you have already exhausted it? You can ask your insurance provider for a cash advance to cover expenses you face immediately. A cash advance will be deducted from your final settlement, but it will not affect the total value of the settlement. Your insurance provider is obligated to maintain your standard of living and should provide you with a cash advance if you cannot cover the costs as they arise.
#4 Avoid Relying Too Much on Credit
Using credit cards or a line of credit that you cannot afford to pay back at the end of the month will have a lasting impact on your finances. Going into debt to cover short-term living expenses can leave you dealing with the consequences of the fire long after you have moved back into your home.
There’s a lot to consider. We understand what your family is going through because we went through it ourselves. For more resources on recovering after a fire, click here for our resource centre.