How much indemnification will Sarah receive for her extra expenses resulting from the fire in her factory?

To determine the amount of indemnification Sarah will receive for her extra expenses resulting from the fire in her factory, it's essential to consider the nature of business interruption insurance, which typically covers loss of income and additional expenses incurred during the period of restoration after a loss incident.

If the correct answer is $125,000, this amount likely reflects Sarah's actual documented additional expenses that exceeded her normal operating costs due to the fire. This could include expenses such as temporary relocation costs, costs associated with overtime pay for employees, or any special renting or leasing fees incurred to keep her business operational while repairs are being made.

In assessing indemnification for extra expenses, insurers evaluate the need for these costs to ensure the business can resume operations and minimize losses. The provided amount should represent a fair compensation for the extra financial burdens Sarah experienced specifically due to the fire incident, reinforcing the principle of indemnity in insurance, which aims to restore the insured to their pre-loss financial position.

Overall, the reasoning centers on accurately calculating the additional costs involved in continuing operations despite the setback from the fire, and $125,000 signifies an appropriate coverage recognizing those extra expenses.