Extra Expense Insurance

Extra Expense Insurance

DEFINITION of 'Extra Expense Insurance'

Insurance coverage that provides funds for reasonable and necessary costs a business may incur in the event that business operations are interrupted. Extra expense insurance coverage applies to the period of time between when a business is forced to temporarily close and when it has been restored to normal operation.

BREAKING DOWN 'Extra Expense Insurance'

Businesses frequently purchase insurance policies to protect themselves from damage to their property. For example, a business may purchase property insurance to cover the building it operates in, and the underwriting insurance company will provide the business with funds to repair any damage that may occur. This type of coverage provides a level of security, but may be inadequate if the damage is severe enough as to disrupt normal business operations for an extended period of time.

Extra expense insurance is designed to cover a business from expenses that it may incur while normal business operations are disrupted. These expenses are often excluded from other insurance policies, such as property insurance, which are designed to cover physical damage resulting from specific perils. Types of expenses that are covered under an extra expense insurance policy have to be considered reasonable and necessary, such as the cost of setting up a temporary office while the damaged office is being repaired.

For example, a manufacturer purchases a property insurance policy to protect itself from fires. The company determines that the cost of relocating in the event of a fire will be expensive, so it also purchases an extra expense insurance policy. After an unexpected fire, the manufacturer is forced to move to a temporary location. Its extra expense insurance covers the cost of setting up a new phone and Internet network, as well as the cost of connecting utilities. Because the setup in the new location reduced the efficiency of the manufacturing process, the company also had to spend more money on overtime, which was also covered by the policy.