Extra Expense Insurance Definition
Extra expense insurance is a type of commercial insurance that pays for the additional costs incurred by a policyholder while recovering from a large disruption. Extra expense insurance covers the time between when a business is forced to close temporarily and when it is reopened for normal operations.
Extra expense insurance provides funds to assist businesses in remaining in operation while their properties are being repaired or replaced. Without this financial aid, some enterprises that experience a significant loss may be forced to close permanently.
Understanding Extra Expense Insurance
Extra expense insurance is intended to assist a company with any expenses that may arise while its normal business activities are disrupted. These payments are sometimes excluded from other forms of insurance policies, such as property insurance, which are designed to assist pay for physical damage caused by certain risks. The expenses covered by an extra expense insurance policy must be fair and essential, such as the cost of establishing a temporary office while the damaged office space and equipment are fixed or replaced.
Businesses commonly obtain insurance coverage to protect themselves against property loss. For example, a company may obtain property insurance to protect the building in which it operates, and the underwriting insurance company will reimburse the company for any damage that occurs. Although this sort of coverage offers some protection, it may be insufficient if the damage is significant enough to impair typical business operations for an extended period of time.
Who May Benefit From Extra Expense Insurance?
Many organizations can benefit from obtaining excess expense insurance, however this coverage is especially important for the following types of businesses:
- Customers rely on the organization's uninterrupted services seven days a week. Data centers, security services, and airport shuttle services are a few examples.
- The company cannot close because the services it offers are vital to the community. Hospitals, medical clinics, nursing homes, homeless shelters, and banks are examples of this sort of business.
- To avoid or shorten the time of a closure, the company could continue to operate from a temporary location.
How Does Extra Expense Insurance Work?
Consider a company that buys property insurance to protect itself from fires. The company calculated that the cost of relocating would be prohibitively expensive in the event of a fire, so it also purchased an additional expense insurance coverage. Following an unanticipated fire, the manufacturer is forced to relocate to a temporary facility. Its additional expense insurance covers the cost of establishing a new phone and internet network, as well as the cost of connecting utilities. Because the temporary location's logistics hampered the company's manufacturing efficiency, the corporation needed to spend more money on overtime; fortunately, this was also covered by the extra expense policy.