What Is Business Income and Extra Expense Insurance Coverage?

When organizations encounter unexpected disasters, avoiding operational disruptions or temporary shutdowns may be challenging, and even brief closures can carry costly consequences. That’s where business interruption insurance can help. This policy can offer much-needed financial protection when an organization’s usual business activities are disrupted due to covered perils (e.g., fires, theft, vandalism, heavy wind and hailstorms). Sometimes called business income insurance, this coverage can be purchased as a supplement to commercial property insurance or secured through a business owner’s policy— a bundled insurance package featuring property and liability coverage. Employers may utilize the business income and extra expense coverage form when obtaining business interruption insurance. The primary insurance agreement in this form states that the insurance carrier will reimburse lost income and various operating expenses stemming from business disruptions as long as these disruptions were caused by covered perils that led to direct physical damage at an insured location. This form also includes some additional coverages and extensions.

With this in mind, it’s crucial for organizations using this form to review and examine its additional coverages and extensions, ensuring their business interruption insurance addresses their unique exposures.

Overview of the Business Income and Extra Expense Coverage Form

The business income and extra expense coverage form, provided by Insurance Services Office Inc. (ISO), is a standard document that many insurance carriers use as a template to outline key protections available under business interruption insurance. Specifically, this form includes financial protection for certain expenses that can arise if an organization is forced to pause its operations or temporarily close its doors due to direct physical damage incurred by covered perils. When an organization experiences a covered peril, the form states that business interruption insurance may help reimburse the following typical operating costs throughout the restoration period:

• Income that the organization would be earning if it were running normally
• Commercial mortgage, rent, lease, loan and tax payments due during a disruption
• Payroll expenses to maintain employees’ wages amid a closure

Additionally, this form summarizes the main features of the extra expense coverage available under business interruption insurance. The form states that such coverage can help pay for extra expenses an organization reasonably sustains (beyond typical operating costs) amid disruptions to help it get back up and running. These expenses may include relocating to a temporary business location during the restoration period, expedited shipping fees for essential materials and supplies, and overtime wages for employees who are asked to work additional hours to minimize operational downtime.

Contact us today to review your business insurance policies to see if business income and extra expense coverage is beneficial to your business.