Additional Expense Coverage
It is coverage that leads to the provision of funds for the expenses that are above the payments made by the policyholder before making a claim.
How Additional Expense Coverage Works
For the additional expense coverage fund to be provided, the insurers will tend to do a baseline establishment for daily expense payment of the policyholder before making a claim. The baseline is used to determine whether the cost caused by the policyholder in the claim is above usual pay. There are also other situations where the insurer will require the provision of expense receipts from the policyholder. If there is no provision of receipts, there might be no recovery of expenses by the policyholder.
At the same time, there are still repairs and replacements of property under the claim covered. Depending on the organization's needs and size, there can be a purchase of extra expense coverage instead or in addition to coverage of business income. Some situations lead to coverage of extra expense. They include the business moving to a location that is different or when its mode functioning changes.
Example of Additional Expense Coverage
Suppose you are a policyholder and move into an apartment while there are repairs at your home, but the apartment doesn't charge utilities. In that case, it will not be possible for you to collect the insurance proceeds. When it comes to commercial policies, there would be payment of additional costs. The additional costs will be more than the expenses for standard operating that can be incurred by a business to ensure it's still operating.
In another example, Elizabeth is a homeowner displaced by a fire disaster at home. Every month, she has to spend an extra $300 on fuel when traveling to work. After filing a claim for property damage by the fire with her insurance company, Elizabeth received $400 in additional expense coverage. It means she received an extra of $100 after the claim.
On the other hand, if she paid $100 monthly for her cell phone usage and the fire accident didn't change the cost, then there is a high chance that the insurance company will not cover the expense. The reason for this is because the expenditure did not exceed the baseline.
Significance of Additional Expense Coverage
If there are specific criteria met, additional expense coverage is provided to the policyholder. The extra expense coverage might also have a maximum time over which there will be a provision of a policy limit of coverage amount and for which you can receive the benefits. The insurance company sets a standard baseline to determine the veracity of a policyholder's claim, which requires the compensation of the additional expenses. It verifies that the other costs attained due to disaster or circumstances changing are a must for policyholders.
It includes documented proofs or receipts for the payment of additional fees. In commercial policies, the business owners can use the extra expense coverage to cover expenses due to disasters or altered situations.
There are specific qualifications that must be met for an insurer under a homeowner's policy to consider an expense. These qualifications include the necessity of the cost; an occurring insurable event must cause the expense. The expense must be purposely for continuing a usual living standard, and the policyholder must incur it. For instance, for a homeowner who has faced property damage by fire, the coverage of additional expenses can cover any of the expenses related to transportation, food costs, and laundry.