Extra expense coverage

Extra expense coverage only applies when your physical location or equipment is damaged by a peril your policy covers. That means:

• If your commercial property policy excludes a cause of loss, such as flood, earthquake, or mold, extra expenses arising from that event likely won’t be covered.
• Damage must cause at least a partial interruption to your operations.
• Expenses must be proven as necessary to reduce the overall cost of the loss (e.g., operating from a temporary location costs less than staying closed).

Extra expense coverage doesn't pay for:

• Long-term lost income, which would fall under business income insurance
• Damage from excluded perils
• Upgrades or permanent improvements
• Expenses deemed “unreasonable” or “excessive”
• Costs unrelated to keeping the business operational

Coverage applies only during the period of restoration or the time it should reasonably take to repair or replace your damaged property. Key things to know:

• Many policies cap this period, for example 12 months
• Coverage ends when repairs should be completed, not necessarily when they actually are if delays aren’t justified
• If repairs take longer than expected, you could run out of coverage before operations are fully restored

Small business owners should choose limits that reflect realistic repair timelines for their type of property or equipment.

Extra expense coverage may be subject to:

• Separate sublimits within a business interruption policy
• Coinsurance requirements where you might need to insure to a certain percentage of value
• Documentation requirements and adjustment by the insurer
• Maximum payable amounts tied to how much loss the expenses prevent

It’s important to review these limits carefully, especially if temporary relocation or equipment rental would be expensive for your type of business.

To get reimbursed after filing a claim, insurers typically require detailed documentation such as:

• Receipts for equipment rentals, temporary space, and temporary utilities
• Payroll records (regular and overtime)
• Invoices for contractors and expedited services
• Proof the expense was necessary to continue operations
• Photos, damage reports, and repair estimates
• Your normal operating costs

Good bookkeeping significantly speeds up claim approval and helps ensure you’re reimbursed in full.

Consider adding extra expense coverage if:

• Your products or services are essential. In other words, if you suspended operations for more than a few days, your customers would likely defect to your competitors.
• You can easily move to a temporary location. Moving elsewhere will help you offset some of your expenses while your business gets restored.
• You can easily access equipment for a temporary location. If you use equipment that can be easily sourced temporarily, it will be relatively easy to transfer operations to another location.

Extra expense often works together with other coverages, including:

• Business interruption insurance, which replaces lost income
• Civil authority coverage protects you if government orders force you to close
• Contingent business interruption covers supplier or utility outages
• Extended period of indemnity safeguards income for a defined period after reopening

Small businesses often bundle these protections within a business owner’s policy (BOP) for an affordable, streamlined package.

There are multiple ways to purchase extra expense coverage:

• As a separate insurance policy
• As a rider to a commercial property insurance policy
• In a package with business interruption insurance
• As part of a business owner’s policy

You can start a free online application with Insureon, where we can help you find the best plan, including extra expense coverage, for your business needs.

There are a few important aspects to keep in mind when evaluating how much extra expense coverage you need:

• Evaluate realistic worst-case scenarios. Fire, water damage, storm damage, or theft of key equipment.
• Estimate costs to operate from a temporary location. Workspace, utilities, equipment rental, and increased labor.
• Compare those costs to policy limits. Make sure they’re high enough to cover several weeks or months of temporary operations.
• Bundle with your other policies for complete protection.