Extra expense coverage

is a form of commercial insurance that pays for a policyholder’s additional costs while recovering from a major disruption.

What is extra expense coverage?

Extra expense insurance is coverage that pays for a company’s non-ordinary expenses after a disruptive incident. It provides cash to help you stay in business while your property is repaired or replaced. Without this financial assistance, businesses that suffer a major loss might have to close permanently.

Extra expense insurance kicks in after a business suffers property damage from a peril (or incident) its commercial property insurance covers. In that instance, extra expense coverage would pay for costs such as:

• Moving your business to a temporary site while your main location is restored
• Buying or leasing equipment for your temporary site
• Paying employees overtime or hiring temporary workers during the transition

Note: Extra expense insurance does not pay for the costs of repairing or replacing your damaged facility. That would be covered by your commercial property insurance. Extra expense coverage only applies to the extraordinary expenses that arise while you continue to operate during the repair or restoration process.

Who needs extra expense coverage?

Consider adding extra expense coverage if:

• Your products or services are essential. In other words, if you suspended operations for more than a few days, your customers would likely defect to your competitors.
• You can easily move to a temporary location. Moving elsewhere will help you offset some of your expenses while your business gets restored.
• You can easily access equipment for a temporary location. If you use equipment that can be easily sourced temporarily, it will be relatively easy to transfer operations to another location.

What’s the difference between extra expense coverage and business interruption insurance?

Extra expense coverage pays for expenses that are above and beyond a business’s normal operating costs. Typically these costs occur when a business can’t operate out of its usual location or if equipment is damaged in an insured event. Business interruption insurance (or business income insurance) covers normal business expenses during a temporary shutdown, including employee wages, loans, and leased business property.

How do you buy extra expense coverage?

There are multiple ways to purchase extra expense coverage:

• As a separate insurance policy
• As a rider to a commercial property insurance policy
• In a package with business interruption insurance
• As part of a business owner’s policy

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