Property & Casualty Insurance Exam (National Portion)Types of PoliciesMedium
A restaurant owner experiences a fire that forces the business to close for three months for repairs. During this period, the restaurant loses significant income and incurs extra expenses to maintain key staff and continue some limited operations from a temporary location. Which commercial property coverage would address these financial losses?
- ALegal Liability Coverage Form.
- BBusiness Income and Extra Expense Coverage Form.
- CBuilders Risk Coverage Form.
- DBuilding and Personal Property Coverage Form.
Show answer & explanationAnswer & explanation
Correct answer: B. Business Income and Extra Expense Coverage Form.
The Business Income and Extra Expense Coverage Form is designed to cover the loss of income a business sustains due to a covered direct physical loss that forces it to suspend operations. It also covers extra expenses incurred to minimize the shutdown period or continue operations at a temporary location.
Why the other options are wrong
- A. The Legal Liability Coverage Form covers the insured's liability for damage to property of others in their care, custody, or control, not their own business income losses.
- C. The Builders Risk Coverage Form covers buildings under construction, not established businesses experiencing income loss from a fire.
- D. The Building and Personal Property Coverage Form covers the physical damage to the building and its contents, not the loss of income or extra expenses incurred from business interruption.
Business Income & Extra Expense
Commercial property coverage that indemnifies the insured for loss of net income and continuing expenses (Business Income) and additional costs incurred to resume or minimize interruption of business (Extra Expense) due to a covered peril.
- Triggered by direct physical loss to covered property.
- Covers profit, payroll, and other continuing expenses.
- Extra Expense helps maintain operations post-loss.
Memory trick: Physical damage is one thing, but 'income and extra costs' after a closure are a whole different beast.