Now that we have reviewed the basics and importance of business income coverage, we will now cover extra expense. Equally as important as business income coverage and often an enhancement to the business income coverage, extra expense coverage is designed to cover necessary expenses (in excess of normal operating expenses) that a business incurs to continue operations after a covered loss.
Extra expense coverage is most valuable for those businesses that cannot afford to suspend operations while their damaged property is being repaired or replaced, and are able to continue operations from a temporary location. If your business provides continuous and/or essential service to your clients, this is a coverage you don’t want to be without. This coverage will pay extra expense to:
- Avoid or minimize the “suspension” of business to continue operations at the described premises or at replacement premises or temporary locations. It includes relocation expenses and costs to equip and operate the replacement or temporary location.
- Minimize the “suspension” of business if you cannot continue operations.
- Example: You own a grocery store and your electrical system is damaged due to a fire. You purchase a generator so that you can reopen your store a week before the electrical system can be replaced. You have reduced the suspension of operations by seven days; thus, the cost of the generator should be covered.
- Repair or replace property, but only to the extent it reduces the amount of loss that otherwise would have been payable under the coverage.
- Example: A piece of equipment that your business cannot function without is damaged and you find a replacement machine and pay an extra 10% of the purchase price to have the machine arrive in two days rather than 2 weeks. Paying the extra has enabled you to reopen your business sooner. Assuming the 10% charge you paid has enabled you to reduce your total extra expense, the charges should be covered.
Today, clients and customers can be lost within a short period of time; thus, it is essential to restore operation with the least amount of delay as possible, and having this coverage will help with that burden. It is always a great idea to have a game plan if disaster strikes. A few items that you may want to include in your plan:
- List of suppliers: movers, furniture & equipment rental facilities, etc.
- Possible temporary locations.
- Computer/phone technicians to ensure a smooth transition of your computer and phone systems to your temporary/replacement location.
If you have questions on how your business is insured for this coverage, please give your agent a call.