What Is Business Income and Extra Expense Coverage?

Business Income and Extra Expense (BI/EE) coverage is a vital part of a business insurance policy, designed to protect a business’s financial stability in the aftermath of a covered disaster. It is a safeguard that goes beyond repairing physical damage to the property, ensuring that a business can survive a period of operational shutdown and resume operations as quickly as possible. This coverage is most often included in a Business Owner’s Policy (BOP) or as an endorsement on a commercial property policy.

The primary function of this coverage is to replace the lost income that a business would have earned if a covered event, such as a fire or a major storm, had not occurred. This includes both the revenue that was lost and the ongoing expenses that the business must continue to pay, such as rent, payroll, and loan payments. Without this coverage, a business could quickly fall into financial ruin, as its income stream would cease while its bills continued to pile up.

A comprehensive BI/EE policy will also include Extra Expense coverage. This coverage pays for the additional costs that a business must incur to get back to a state of normal operations. This can include:

• The cost of a temporary location, such as a temporary office or a pop-up store.
• Overtime pay for employees who are working to get the business up and running again.
• The cost of renting equipment to replace damaged equipment.
• Advertising expenses to notify customers of a new location.
• The cost of a security guard to protect a damaged building.

A key element of BI/EE coverage is that it only applies to losses that result from a covered peril under the primary policy. For example, if a business’s commercial property policy covers fire but excludes floods, the BI/EE coverage would not apply to a loss of income caused by a flood. The coverage also has a waiting period, which is typically 48 or 72 hours, before the benefits begin to pay out.

The amount of BI/EE coverage a business needs is based on its projected income and expenses. It is crucial for a business to work with an insurance broker to determine the right amount of coverage, as a business that is underinsured could face significant financial hardship. This coverage is not just for large businesses; it is an essential safeguard for any business that relies on a physical location to generate income.