If your business suffers property damage, it may mean major disruptions in your operations. If you need to move temporarily to a new space or make key purchases to keep your business running, these additional expenses can be covered by Extra Expense Coverage, which often comes bundled with business interruption insurance.

What is Extra Expense Coverage?

Extra Expense Coverage is a type of insurance that provides financial coverage for additional expenses a business incurs in order to continue operations when facing property damage by a covered peril. Often times, a business that suffers severe property damage may be at risk of closing permanently if it is unable to continue operating while repairs are being made—this is where Extra Expense Coverage can come in handy. Extra Expense Coverage will provide you with the funds that are needed in excess of standard operating expenses in order to keep your business running during repairs or recovery.

Example:

• A fire severely damages your bakery, to the point where it is no longer safe for you to operate in your commercial space. Your commercial property policy would cover the cost of repairing the physical property of your business; however, it will take six months of work to repair. You’re able to find another temporary commercial space to rent and operate out of, and Extra Expense Coverage would cover the expenses need to lease this space and furnish it with the right equipment to keep your business going.

Extra Expense Coverage can be a vital coverage to have in order to protect your business and keep it afloat in the case of a disastrous event like a fire or storm. Without Extra Expense Coverage, a business that suffers property damage may be unable to pay for the necessary expenses needed to avoid or minimize any disruptions in normal business operations.

Why is Extra Expense Coverage important?

If you are a business owner that depends on having a physical location to operate your business, your chances of needing Extra Expense Coverage increase dramatically. Because the viability of your business depends on having a physical establishment from which to operate, you are susceptible to serious expenses, if not a complete shutdown of your business, if you face any extraordinary peril unprepared.

Some businesses that rely heavily on a physical location include but are not limited to:

• Restaurants, bakeries, caterers, cafes
• Supermarkets or grocery stores
• Hotels, inns, or hospitality services
• Retail, consumer goods, products
• Service-based businesses like hair salons or auto repair shops
• Data centers or server centers

In addition to these businesses, if your establishment provides services that are essential to your community, you may also want to consider Extra Expense Coverage. Some of these institutions may include:

• Nursing or rehabilitative services
• Hospitals or medical clinics
• Banks

While many business owners may believe that having a commercial property policy is enough to cover any unexpected property damage, a property policy alone may not be enough to keep your business running in the event of a disaster. While standard property policies will cover the repair or replacement of business property that is damaged by a covered peril, a standard property policy will not provide the funds needed to rent temporary space or equipment to keep your company operating during repairs or rebuilding. Extra Expense Coverage can provide the financial bridge you need to keep income flowing while your business property is restored.

What does Extra Expense Coverage cover?

Extra Expenses Coverage will cover any necessary expenses you incur, beyond your normal day-to-day operating costs, in order to avoid or minimize a suspension of business operations and keep your business running. Covered costs would not include the costs to repair or replace damaged property, which would be covered by your commercial property policy, or your standard operating costs like rent or payroll, which would be covered by a business income policy.

Some examples of covered expenses include:

• Renting a temporary place of business while your original place of business is being restored
• Any rental equipment needed to continue normal business operations
• Additional labor or human resources needed to transition your business to a new place of business and continue normal business operations

Extra Expense Coverage will only cover expenses that you incurred as a result of suffering property damage from a covered peril, and the expenses must occur while your business is rebuilding or being repaired, also known as the period of restoration.

The period of restoration is the time gap between when your property is damaged and when your property has been fully restored and available for regular daily business operations. The period of restoration begins on the date of the property damage and ends when your property has been replaced or restored. However, keep in mind that the period of restoration may not account for any mandatory testing or certifications required at your new property.

How do I purchase Extra Expense Coverage?

There are a number of ways you can purchase Extra Expense Coverage. Some of these options are listed below:

1. Added onto commercial property insurance:

Extra Expense Coverage is very often added as an endorsement to a commercial property policy. For businesses that heavily depend on their physical property in order to operate and that can easily move operations to a temporary space, Extra Expense Coverage may be a necessary extension of property protection, providing a financial bridge until damaged property is repaired, rebuilt, or replaced.

2. Bundled with business income insurance:

Business income or business interruption insurance is a common endorsement to commercial property policies, and many business income forms include Extra Expense Coverage. The two coverages pair well together, as business income insurance covers loss of income and operating expenses due to property damage, while Extra Expense Coverage covers costs in excess of normal operating expenses.

3. As part of a business owner’s policy:

Extra Expense Coverage is often included in a business owner’s policy (BOP), which is a convenient package made for qualified small business owners that marries major property and liability risks. A business owner’s policy typically provides coverage for general liability, commercial property, business income, and Extra Expense Coverage.

Extra Expense Coverage Pricing

Extra Expense Coverage is typically not sold on a standalone basis but can be added to your commercial property insurance policy or bundled with a business owner’s policy. In order to determine pricing for your property policy, insurers will take a look at the risk of loss for your business. Part of this calculation will involve assigning a commercial property insurance rating, which is specific to the building or property you’re looking to insure. The higher risk your business is rated, the higher the premiums will be.

Some of the factors that can affect your premium pricing include:

• Claims history. A history of prior losses can increase your premiums.
• Neighbors. Neighbors engaged in risky activities, such as a dry cleaner using flammable solvents or chemicals may increase your premiums.
• Fire risk. Having a fire station nearby may lower your premium. Fireproof (brick or stone) construction or fire-resistant interior floors, walls, and doors cost less to insure. Fire alarms or sprinkler systems may also reduce your rates.
• Business type. Depending on what type of business you run, your risks for property damage may be higher or lower. For example, in the same location, a restaurant or auto repair shop would have higher risk and higher premiums than a flower shop due to increased risks of fire.
• Neighborhood. The surrounding neighborhood characteristics can also affect your rate. If the immediate area has high levels of criminal activity or is exposed to frequent accidents or natural disasters, your rates may be higher. Also, if you have neighboring businesses with high fire risks such as an oil refinery, you may also face higher rates.

In order to get an accurate estimate on pricing, it’s best to get a quote from a reputable insurance company. Below we’ve highlighted a few of our trusted partners who offer property policies:

Provider	Extra Expense	Business Income	Commercial Property	Business Owner's Policy
CoverageSmith	??	??	??	??
CoverWallet	??	??	??	??
Thimble	??	??	??	??

Is Extra Expense Coverage the same as business income coverage?

No, Extra Expense Coverage and business income coverage are not the same. While Extra Expense Insurance covers your business for costs above and beyond normal operating expenses that are necessary to keep your business solvent in the event of property damage, business income or business interruption insurance covers your day-to-day operating expenses, such as utilities and rent, as well as lost income. The two coverages are typically added as endorsements to a commercial property policy or to a business owner’s policy.

Final Word

There are many things that can happen in the course of running your business that could potentially derail your day-to-day business operations or even threaten your business altogether. As a business owner, you never want to open yourself up to any situation that could completely shutdown all the investment and energy you put into your business. Extra Expense Coverage could mean the difference between staying afloat and losing your business due to one single life-changing event.