How is the amount for additional living expenses typically calculated under a homeowners policy?

The amount for additional living expenses (ALE) under a homeowners policy is typically calculated as a percentage of Coverage A, which is the dwelling coverage limit. Coverage A provides the amount the insurance policy will pay for damages to the home structure itself. The ALE coverage is designed to help policyholders cover increased living costs when they cannot live in their home due to a covered loss.

By calculating ALE as a percentage of Coverage A, insurers ensure that the amount allocated for additional living expenses is relatively aligned with the overall value of the dwelling. This allows for a more equitable assessment of the policyholder’s needs based on the size and value of their home.

In contrast, using a fixed rate per month or a standard amount per day might not accurately reflect the actual additional living costs incurred by the policyholder. Out-of-pocket reimbursement would require insureds to pay upfront costs and then seek reimbursement, which can be less straightforward in practice compared to the percentage-based approach. Therefore, using coverage as a basis ensures that ALE can proportionately reflect the circumstances of the dwelling damage and the policyholder’s situation.