State Farm Insurance License Practice Exam

What type of losses does the Extra Expense coverage cover?

1. Losses related to property depreciation

2. Non-efficient operational practices

3. Costs related to continuing operations after a loss

4. Losses incurred from natural disasters only

The correct answer is: Costs related to continuing operations after a loss

The coverage provided by Extra Expense is specifically designed to address the costs a business incurs to maintain its operations after a covered loss has occurred. This typically includes expenses that would not have been needed if the loss had not happened, such as renting temporary space, acquiring temporary equipment, or hiring additional staff to keep business operations running. The primary focus of Extra Expense coverage is to minimize the impact of interruptions caused by events like fire or water damage, ensuring that a business can keep going amidst recovery efforts. Understanding other options provides clarity on why they do not represent the correct type of loss covered under Extra Expense. Losses related to property depreciation do not align with the purpose of Extra Expense coverage, which is focused on operational continuity rather than the value of property over time. Non-efficient operational practices might contribute to increased costs but do not relate to coverage for losses post-event. Lastly, while natural disasters can result in losses that invoke Extra Expense coverage, this coverage is not limited strictly to losses from such events; it applies to any covered loss that affects the business's normal operations.