What Is Extra Expense Coverage?
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What Is Extra Expense Coverage?

Imagine you're a small-business owner. (This should be easy for you.) You're the proud owner and curator of Dom's Devilish Donuts (after your late great uncle Dominick), dishing up the most delightful donut creations in the tri-county area.

Late one night, the unthinkable happens – a gas leak at a restaurant next door ignites, rocking the block with an explosion. The restaurant and its surrounding neighbors, including your donut shop, are reduced to rubble. Fortunately, no one is hurt. Emergency personnel flood the area. Police shut down the entire block with barricades. And you have no idea how long it will take to get your donut domain back up and running.

Seem unlikely? Well, a similar event happened in March 2015 when a gas explosion destroyed a corner of the East Village in New York City. Unfortunately, lives were lost and three buildings were wiped out in the blast.

It's enough to make you wonder: how do you keep your business going after a disruptive disaster?

Recovery in the Aftermath with Extra Expense Insurance

Let's say you invested in Business Interruption Insurance. This coverage can help you pay for continuing expenses (e.g., loans, employee wages, and rent) while you rebuild your donut shop. But you were thinking ahead back when you bought your policy, so you also have an Extra Expense Insurance rider.

Extra Expense coverage may offer funds to pay for non-ordinary operating costs that can help your business get back on its feet faster. It may help cover the cost of:

  • Setting up shop in a temporary location.
  • Purchasing or renting equipment or supplies for the temporary location.
  • Paying employees overtime or adding temporary workers.

In short, you'll be serving up those hot, delicious devil's food cake donuts in no time because Extra Expense Insurance can offer you the financial flexibility you may need to operate at a temporary location. This ultimately decreases what the insurer has to pay by returning the business to functionality faster than usual (and therefore making sure it starts bringing in revenue ASAP).

For more details on Extra Expense coverage, read "Business Interruption, General Liability, & Property Insurance: Oh, My."

Evaluate Your Need for Extra Expense Coverage

If you’re so busy that you only focus on day-to-day operations, you may have overlooked the what-if scenarios that can take you by surprise, so start planning ahead now. It might be wise to make Extra Expense coverage part of your business continuity plan if…

  • Your products or services are vital to customers. If so, you probably can't suspend your operations for long without losing customers (and significant revenue) to the competition.
  • You're able to easily operate in a temporary location. If you can resume operations elsewhere, you may be able to offset some of your costs during the business interruption.
  • You can easily purchase or lease temporary equipment. If you're dependent on highly specialized or custom-built equipment, it may be nearly impossible to resume operations if temporary replacements don't measure up.

Carefully evaluate your business's limitations to determine what type of Business Interruption Insurance policy best fits your needs.

Business Interruption Insurance: Further Reading