An extra expense coverage form pays for necessary additional costs a business incurs to avoid or reduce a suspension of operations after covered property damage. Instead of focusing mainly on lost income, it focuses on the extra money spent to keep the business functioning or to resume operations faster.
In plain terms, it covers the cost of working around the damage.
How it works
After a covered loss, a business may need to spend money it would not normally spend, such as:
- renting temporary space
- paying overtime to move or restart operations
- expediting replacement equipment
- using temporary systems, vendors, or workarounds
If those expenses are necessary and fall within the form’s terms, the policy may reimburse them.
Extra expense vs business income
Extra expense and business income are related but not identical:
- Business income focuses on lost earnings during the interruption.
- Extra expense focuses on the added cost of reducing or avoiding that interruption.
Many property programs include both coverages because a business can suffer lost income and also incur extra costs trying to limit that loss.
Claim and underwriting context
These claims often depend on whether the expense was reasonable, necessary, and tied to the covered loss. Underwriters pay attention to how interruption-sensitive the insured is. A hospital, manufacturer, or service operation that cannot easily shut down may place a higher value on extra expense protection than a business that can pause with less disruption.
Related Terms
- Business Income Coverage
- Business Interruption Insurance
- Period of Restoration
- Time Element Insurance
- Extended Period of Indemnity
- Extra Expense