What it means
ALE answers a practical question that building cover alone ignores: where do the occupants live while the repairs happen. It pays for temporary accommodation, higher food costs, storage, laundry and extra travel caused by the move.
It does not pay for the repairs themselves, which sit under the property damage section of the policy. The key word is additional.
If a household normally spends $2,400 a month on housing and food and the displaced cost is $4,500, the insurer pays the $2,100 difference rather than the full $4,500. People who miss this distinction often feel short changed when the first payment arrives.
The limit is usually expressed as a percentage of the dwelling sum insured, commonly somewhere in the region of 10% to 30%, or as a period such as twelve or twenty four months. Some policies cap both, so the claim stops at whichever limit is reached first.
Checking which cap bites is more useful than admiring the headline figure. Cover is triggered only when the premises are genuinely unfit to occupy because of an insured event, and only for the reasonable time needed to repair or replace them.
A householder who moves somewhere far more expensive than necessary will see the claim trimmed back to a comparable standard. Keeping receipts is essential, because ALE is reimbursed against actual documented spending.
The commercial equivalent is loss of rent or increased cost of working cover, which pays a landlord's lost rental income or a business's extra operating costs after damage. The underlying principle is identical: the policy restores the position you were in, it does not fund an upgrade.
In practice
Real-world examples.
Example
A family of four is displaced for seven months after a burst pipe floods the ground floor of their home. Their normal housing and food cost is $2,600 a month and the temporary rental plus meals comes to $4,100, so the insurer reimburses $1,500 a month, or $10,500 across the period. The adjuster asks for receipts each month rather than paying a lump sum up front.
Example
A dental surgery above a bakery is closed by smoke damage from a fire below. The practice rents a serviced clinic for three months at $6,000 a month against its usual $3,500 rent, and the increased cost of working section pays the $2,500 monthly difference. The claim is also subject to the twelve month indemnity period written into the policy.
Example
A landlord's duplex is uninhabitable for four months after storm damage. Building cover pays for the repairs while the loss of rent section replaces the $1,900 monthly rent, totalling $7,600. The tenants' own contents policy, not the landlord's, pays their additional living expenses.
Formula
Calculation
ALE policy limit = ALE percentage x dwelling sum insured
ALE claim = actual living costs while displaced - normal living costs for the same period, subject to the policy limit
Worked example: a home is insured for $400,000 with ALE cover set at 20% of that figure, giving a limit of 0.20 x 400,000 = $80,000. A kitchen fire makes the property unfit to occupy for 5 months. The family normally spends $2,400 a month on housing and food. While displaced they pay $3,000 in rent, $1,200 on restaurant meals and $300 on storage, a total of $4,500 a month. The additional expense is 4,500 - 2,400 = $2,100 a month, so the claim is 5 x 2,100 = $10,500, comfortably inside the $80,000 limit.Case study
Seen in the real world.
Juniper Lane Lettings is an illustrative, fictional family business that owns six rental houses and lives in a seventh. When a storm tore the roof off two of the rentals and their own home, the owners assumed one claim would cover everything.
It did not. The two rentals were covered for repairs and for the $3,400 of monthly rent lost across five months, a $17,000 loss of rent claim. Their own home, however, was insured for $350,000 with ALE at only 10%, giving a $35,000 ceiling. Repairs ran for eleven months at an additional cost of $2,900 a month, which comes to $31,900 and left almost no headroom.
The illustrative lesson is about structure rather than bad luck. Juniper Lane raised the ALE percentage on the family home at the next renewal and checked that each rental policy carried a loss of rent period long enough to cover a slow rebuild in a busy market.
Watch out
Common mistakes.
- Expecting the insurer to pay the entire temporary accommodation bill rather than only the amount above normal living costs.
- Assuming the cover lasts as long as the repairs take, when most policies also impose a cap measured in months.
- Throwing away receipts for meals, storage and extra travel, which leaves genuine additional costs unprovable at claim time.
Questions
People also ask.
Does ALE pay the mortgage or rent I still owe on the damaged home?
No, those are costs you would have paid anyway, so only the increase caused by the displacement is covered.
When does the cover start and stop?
It starts when the premises become unfit to occupy because of an insured event and stops when they are fit again, or when the money or time limit runs out, whichever comes first.
Can I choose any temporary home?
You can choose, but the insurer only has to pay for accommodation of a comparable standard, so anything grander is reimbursed only up to that comparable cost.
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