Wendy’s Briefcase – Business Income and Extra Expense

Business owners purchase insurance on their businesses, usually insuring their building, contents, liability and other coverages, similar to what a homeowner will purchase on their home, although in a more complex format. 

One of the most important coverages purchased is Business Income and Extra Expense.  This coverage does not replace the building or personal property, it puts the business back into the same financial position it was in, prior to the loss, such as the building burning down.  Business Income replaces lost income and Extra Expense pays for the additional operating expenses (over and above the businesses normal operating expenses) so that the business can get up and running as soon as possible, it that is an option.  In some instances, such as restaurants, the business cannot open at a different location while they rebuild, because their business is both tied and reliant on their location for success. 

There are many ways to purchase Business Income and Extra Expense, but one of the most popular ways, and a coverage often touted by insurance agents and/or companies, is a coverage called “Actual Loss Sustained for up to 12 months”.   Th type of Business Income and Extra Expense is often purchased because it is included in the policy type, or the agent suggests it, or it is just a simpler form of the coverage and no information is needed from the client to purchase it.  In many cases it is viewed as better coverage than Business Income and Extra Expense with a dollar limit, such as $500,000, however this is not necessarily the case, especially in 2018. 

How long does it take to rebuild a building?  How long does it take to replace complex machinery, likely not manufactured in the US?  In 2018, it will probably take longer than 12 months to rebuild.  If your business is a restaurant, it will definitely take longer than 12 months to regain all of the former business. 

The next time you are speaking with your business insurance agent, ask them to explain the different Business Income and Extra Expense Coverage forms and to provide a quote by reviewing all coverage forms and their costs can a business owner make and informed decision for their business.