Guides
Extra expense coverage explained
What extra expense coverage pays after a covered loss: relocation, temporary space and equipment, how it differs from lost income, with an example.
Extra expense coverage pays the additional costs you incur to keep operating, or to get back to operating sooner, after a covered physical loss. Rent for temporary space, moving costs, rented equipment and overtime are the typical items. It sits beside business income coverage in the standard ISO form but does something different: business income replaces profit and continuing costs you lose, while extra expense pays costs you would not have had at all.
What the form says
In the ISO Business Income (and Extra Expense) Coverage Form, CP 00 30 10 12, Extra Expense means necessary expenses you incur during the period of restoration that you would not have incurred if there had been no direct physical loss or damage to property caused by a covered cause of loss. It is available at a premises only if the declarations show Business Income coverage there. The insurer pays extra expense, other than expense to repair or replace property, to:
- Avoid or minimize the suspension of business and continue operations at the described premises, replacement premises or temporary locations, including relocation expenses and the cost to equip and operate the replacement or temporary location; or
- Minimize the suspension of business if you cannot continue operations.
The insurer will also pay extra expense to repair or replace property, but only to the extent that doing so reduces the loss that would otherwise have been payable under the form. That clause is why paying a contractor overtime to finish a rebuild sooner can be covered: the spend is recovered through the lost income it avoids.
Four other points from the form shape how it works in practice:
- No waiting period. The period of restoration starts immediately for Extra Expense, while the 72-hour wait applies to Business Income. Civil Authority extra expense also begins immediately. See civil authority coverage: when an order closes your doors.
- Net of normal costs. The amount is all expenses that exceed the normal operating expenses you would have had during the period of restoration if no loss had occurred. Salvage value of property bought for temporary use, once operations resume, is deducted, and so is any extra expense paid by other insurance.
- No coinsurance. The coinsurance condition does not apply to Extra Expense.
- Same limit. Payments for Extra Expense do not increase the Business Income limit. The limit is one pot.
What counts, and what does not
| Cost | Typically paid under the standard form? |
|---|---|
| Rent for temporary space beyond what you would normally pay | Yes, to the extent it exceeds normal rent |
| Moving, setup, phone and internet at the temporary site | Yes, as relocation and equipping costs |
| Rented equipment or vehicles to keep operating | Yes |
| Overtime and premium freight to restart sooner | Yes, if necessary; if it speeds repair, only to the extent it reduces the loss |
| Advertising to tell customers where you moved | Depends on the claim; the form does not list it, so document why it was necessary to minimize the suspension |
| Permanent improvements or upgrades at a new location | No; the period of restoration ends when you resume at a new permanent location |
| Costs you would have had anyway | No; only the excess counts |
| Costs that run past the period of restoration | No; the period excludes added time due to building codes or zoning enforcement |
| Repair or replacement of the damaged property itself | No, except as it reduces the loss otherwise payable; that is covered by the property limit |
A worked example (hypothetical)
Say a 12-person law firm leases an office. A sprinkler head fails, causing a covered leakage loss, and the suite is unusable for 10 weeks. Clients still need service, and the firm bills from a temporary suite, so it loses little income, but its costs go up.
| Item | Amount |
|---|---|
| Temporary office, 10 weeks at $6,500 | $65,000 |
| Moving, IT and telecom setup | $18,000 |
| Rented equipment | $7,500 |
| Overtime to rebuild files | $4,000 |
| Client notices and web updates | $2,000 |
| Subtotal | $96,500 |
| Less salvage value of furniture bought for temporary use | -$3,000 |
| Extra expense claim | $93,500 |
Two wrinkles. If the lease keeps rent running at the damaged suite, the temporary rent is entirely extra. If the landlord abates rent while the suite is unusable, the normal rent that the firm no longer pays is netted against the temporary rent. And because extra expense is paid from the first day, the 72-hour wait that affects lost income does not reduce this claim. The firm's Business Income limit has to cover this and anything else it claims; see how to calculate a business income limit.
Which form carries it
There are three arrangements in the ISO program, and the policy may use something else:
- CP 00 30, Business Income (and Extra Expense): both coverages under a single form and limit.
- CP 00 32, Business Income (Without Extra Expense): lost income only, if extra expense is insured elsewhere.
- CP 00 50, Extra Expense Coverage Form: extra expense only, for a business that expects to keep earning if it can relocate.
Package and businessowners policies often include both coverages without separate forms; check the declarations and the form list. For a businessowners form, see What is a business owner's policy (BOP)?.
Who depends on it most
Some operations cannot afford to stop, so the value is in the extra cost of staying open rather than the income lost during a closure. Medical offices, law firms and accountants with clients waiting, businesses with perishable inventory, and anyone whose contracts penalize downtime are in this group. A medical practice, for example, may rent a temporary clinic and move its records and equipment; see Medical practice insurance. A law firm in a leased suite faces the same sequence; see Law firm insurance. For these businesses, the extra expense estimate may drive the limit more than lost profit does. Businesses that simply close and wait are mostly exposed on the business income side.
Sizing the limit
Extra expense is easy to under-estimate because you cannot see it until you try to relocate. A planning exercise helps:
- Identify where you would go: a sublease, a sister location, shared space or a serviced office. Get rough quotes.
- List what must move or be bought: computers, phones, files, furniture, specialized equipment, licensed software.
- Estimate how long relocation takes and what each week costs.
- Add overtime, shipping and communications.
- Add that total to your business income estimate; the limit must cover both. See business interruption insurance: how business income coverage works.
Having a pre-arranged continuity plan also reduces cost, and a documented plan helps explain later why each cost was necessary.
Claiming it
Tell the adjuster before you sign a lease for temporary space, not after. Keep a separate ledger for post-loss costs, with receipts and a note on why each cost was necessary. Record what you would normally have spent so the "exceeds normal" comparison is easy. The form says you must resume operations as quickly as possible, and the insurer reduces extra expense to the extent you can return operations to normal and drop it. Keep the temporary arrangement no longer than you need it. documenting a business interruption claim, from day one to final payment gives the full documentation routine.
Limits and gaps
Extra expense follows the covered cause of loss. If flood or earthquake damaged your building and you have no coverage for those perils, extra expense is not covered either. A utility outage that starts off-premises needs a utility service endorsement; see utility service interruption coverage: when an outage is insured. A supplier's loss is a contingent exposure. And because the limit is shared, a large extra expense claim shrinks what remains for lost income.
Key takeaways
- Extra expense pays the costs you add to keep operating after a covered physical loss; business income pays the profit and continuing costs you lose.
- Under the standard form it starts immediately, has no coinsurance, nets out normal expenses and salvage, and shares the business income limit.
- Temporary space, relocation, rented equipment and overtime are the usual items. Permanent upgrades and costs after the period of restoration are not.
- Plan the relocation before a loss and estimate its cost; the extra expense figure belongs in the limit calculation.
- Keep a separate ledger of post-loss costs and talk to the adjuster before committing to a lease.