Definition of Extra Expense Coverage in Business Insurance

Commercial insurance terms and definitions.
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Extra Expense Coverage

Commercial insurance covers various unforeseen circumstances that could topple a business. It helps to pay for legal fees and as well as reparations should the company be deemed responsible for damages. However, this insurance is for short-term or one-time issues. In simpler terms, it handles a temporary loss when the company doesn’t need to relocate to another space to run its operations.

Extra Expense Coverage

The limited structure of a standard commercial policy doesn’t work in situations where the business encounters a major disruption. For this, the insured needs to consider the purchase of extra expense coverage. When activated, it pays the additional costs the insured might have if it’s forced to temporarily close or relocate while repairs are made on the original facility. To put it in simpler terms, “extra expense” covers the gap of lost wages and income between the shutdown and the resumption of normal operations.

Extra expense coverage doesn’t allow the business to upgrade to the highest-end infrastructure materials or equipment. Rather, it considers the reasonable and necessary costs to help maintain a revenue stream.

Who Requires This Insurance?

Extra expense coverage is vital for service businesses that continually work with customers. Thus, a 24/7 call center would need it more than a small business that’s only open 40 hours a week. Other examples that need extra expense coverage include hospitals, police stations, and public transportation stations.

What Is Covered?

What’s built into extra expense coverage doesn’t differ much from what’s in a standard commercial policy. Reimbursement for building and equipment damage is part of it. For the extra expense coverage to kick-in, the business would need to request help to set-up a temporary center of operations to resume work with their customers.

As mentioned earlier, these costs need to be both reasonable and necessary. An insurer would deny coverage if an organization moves into a high-rent building for their temporary operations and purchases top-of-the-line computers. Overall, the coverage would cover the replacement value of the lost items.

Coverage Examples

Here are some examples of what extra expense coverage might handle:

  • Rent for temporary operation space.

  • Costs to install a new network and communication system.

  • Vehicles required for 24/7 operations.

  • Potential overtime due to a smaller space or to resume operations.

Disaster Recovery Plan

Organizations that deal significantly with customer interaction should consider adding extra expense coverage into their disaster recovery plan (DRP). On top of having a way to reroute critical operations to minimize disruption, contact information for the coverage needs to be included. This allows DRP managers to quickly file a claim to help out with the potential costs.