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Contrasted with Business Income Coverage

Summary: What will be the insured’s most pressing need if a fire or other disaster interrupts the normal operation of the enterprise? Specifically, if normal relations with customers are interrupted for a time, what will be the effect on the insured’s operations over the long range? Alternatively, does the insured deal in services of a type that can be readily transferred to a new location so that the prospect of an interruption of significant duration need not even be contemplated? The answers to these questions provide the strongest possible guide to the insured in determining whether business income coverage or extra expense insurance is the primary need.

Topics covered: Need for extra expense coverage Insured may need both Extra expense coverage form Limits of insurance Loss conditions Definitions

Need for Extra Expense Coverage

Most insureds are able to anticipate a temporary suspension of operations with the realization that the flow of customers will be, likewise, only temporarily suspended. It is even possible that, in the case of retailers, the interest generated by fire sales and by a gala reopening of remodeled premises can have a salutary effect on the business. Firms that are able to anticipate that the customer flow will resume in step with resumption of operations are those that, in general, market their goods or, less often, services broadly to a wide and general market. Such firms are most in need of a source of funds to replace the income that the business would have generated, funds that it will need to meet the unavoidable financial obligations that will continue during the time of business shutdown; they need business income coverage. See Business Income (and Extra Expense) Coverage Form .

Other firms, especially those dealing in services, may face a permanent loss of customers if the service is interrupted for any significant length of time. Banks, newspapers, and internet services are frequently cited as examples of businesses that cannot tell their customers to go elsewhere for a month or two and expect them to return with the reopening. Far more numerous are the firms that need never contemplate any except the briefest of interruptions because their operations are readily transportable to another, temporary location; firms, for example, that offer professional services and depend more on persons than on capital equipment and places. Firms in this categorythose that cannot contemplate a suspension of service and those that do not need to contemplate a suspensionhave extra expense insurance as their primary need. As long as they have a source of funds to support the extraordinary expenses of staying in business, they should not experience a drop in income from the business.

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