Does my business need extra expense insurance?

Do you know what extra costs would be if you had a fire?

Extra expense coverage can be necessary if you suffer a claim resulting in your building becoming unsafe for your use by an insured peril. What could cause an extra expense? A fire, water damage or an emergency evacuation order. It is likely that you will have to find another location in which to continue your business operations.

This coverage differs from business interruption coverage in that it doesn't pay anything in regard to lost earnings. This is set up to take care of the extra expenses that happen in maintaining your usual cash flow over and above what would normally have been paid if the fire, flood, or other peril had not occurred.

If you have a business that can't suffer even a limited interruption such as a bakery, hospital or laundry then you should consider purchasing extra expense insurance. You need to carefully consider what could happen and the costs implied. You have to choose the amount to buy.

The cost to relocate a business, even if it is a temporary measure, will involve many extra expenses which could include installation of telephones, rent and set up of a computer system. Even if you have a second location that you can use there will be increased transportation costs.

The insurance companies usually put a limitation on how the money is to be paid out. The usual formula is up to 40% of the amount is paid in the first 30 day period following the loss. For the next 30 day period not more then 30% is paid out then it becomes 20% and finally 10%. it is important that you be aware that the insurance company does not automatically cut you a cheque for that amount. You have to show that you have spent that much in the first 30 days and onward.

You would still consider a business interruption coverage for the less immediate need expenses that would be on-going. Most companies will look at having both Extra Expense and either Gross Profits or Gross Earnings policies.

Talk to your agent or broker about what suits your needs best. Knowing what you have covered gives you control. You need to have control to run your business properly.