Extra Expense Insurance

Extra Expense Insurance

Extra expense insurance is a form of commercial insurance that pays for a policyholder’s additional costs while recovering from a major disruption. For example, a business may purchase property insurance to cover the building it operates in, and the underwriting insurance company will provide the business with funds to repair any damage that may occur. The expenses that are covered under an extra expense insurance policy need to be considered both reasonable and necessary, such as the cost of setting up a temporary office while the damaged office space and equipment are being repaired or replaced. Extra expense insurance is designed to help a business with any expenses that it might incur while its normal business operations are disrupted. Businesses that provide continuous services that customers depend on seven days a week, such as data centers, and those that perform essential duties, like hospitals, are good candidates for extra expense insurance.

Extra expense insurance covers reasonable and necessary costs that a business might incur as a result of a major disruption to its operations.

What Is Extra Expense Insurance?

Extra expense insurance is a form of commercial insurance that pays for a policyholder’s additional costs while recovering from a major disruption. Extra expense insurance coverage applies to the period of time between when a business is forced to close temporarily and when it has been restored to normal operation.

Extra expense insurance provides cash to help companies stay in business while their properties are being repaired or replaced. Without this financial assistance, some businesses that suffer a major loss could be faced with closing permanently.

Extra expense insurance covers reasonable and necessary costs that a business might incur as a result of a major disruption to its operations.
Businesses that provide continuous services that customers depend on seven days a week, such as data centers, and those that perform essential duties, like hospitals, are good candidates for extra expense insurance.

Understanding Extra Expense Insurance

Extra expense insurance is designed to help a business with any expenses that it might incur while its normal business operations are disrupted. These expenses are often excluded from other types of insurance policies — property insurance, for example — that are designed to help pay for physical damage that results from specific perils. The expenses that are covered under an extra expense insurance policy need to be considered both reasonable and necessary, such as the cost of setting up a temporary office while the damaged office space and equipment are being repaired or replaced.

Businesses frequently purchase insurance policies to protect themselves from damage to their property. For example, a business may purchase property insurance to cover the building it operates in, and the underwriting insurance company will provide the business with funds to repair any damage that may occur. Although this type of coverage provides a level of security, it could be inadequate if the damage is severe enough to disrupt normal business operations for an extended period.

Who May Benefit From Extra Expense Insurance?

Many businesses can benefit from having extra expense insurance, but this coverage is especially applicable to businesses that fit the following descriptions:

In order for expenses to be covered under an extra expense insurance policy, they need to be considered both reasonable and necessary.

How Does Extra Expense Insurance Work?

Consider a manufacturer that purchases a property insurance policy to protect itself from fires. The company determined that the cost of relocating in the event of a fire would be expensive, so it also purchases an extra expense insurance policy. After an unexpected fire, the manufacturer is forced to move to a temporary location. Its extra expense insurance covers the cost of setting up a new phone and internet network, as well as the cost of connecting utilities. Because the logistics of the temporary location also reduced the company's manufacturing efficiency, the company needed to spend more money on overtime; fortunately, this also was covered by the extra expense policy.

Related terms:

Accounting

Accounting is the process of recording, summarizing, analyzing, and reporting financial transactions of a business to oversight agencies, regulators, and the IRS. read more

Aircraft Insurance

Aircraft insurance provides liability and property coverage of aircraft. read more

Boiler And Machinery (BM) Insurance

Boiler And Machinery Insurance (BM) provides coverage for physical damage to and financial loss from equipment breakdown. read more

Business Owner Policy – BOP

A business owner policy (BOP) combines protection from all major property and liability risks into one package. They typically contain business interruption insurance, property insurance, and liability protection. read more

Commercial Lines Insurance

Commercial lines insurance helps keep the economy running smoothly by protecting businesses from potential losses they couldn’t afford to cover. read more

Comprehensive Glass Policy

A comprehensive glass policy is an insurance policy that covers a wide range of glass products that have been broken or damaged. read more

Insurance Coverage

Insurance coverage is the amount of risk or liability covered for an individual or entity by way of insurance services.  read more

Property Insurance

Property insurance provides financial reimbursement to the owner or renter of a structure and its contents in the event of damage or theft. read more

Total Insurable Value (TIV)

Total insurable value (TIV) is the value of property, inventory, equipment, and business income covered in an insurance policy. read more

Underwriting

Underwriting—financing or guaranteeing—is the process through which an individual or institution takes on financial risk for a fee. read more