No one who’s responsible for insuring a factory would dream of skimping on basic property and general liability insurance. But many executives aren’t as keen on two other key types of coverage: credit insurance and business interruption (BI) insurance.
With credit insurance, it’s usually a case of not having it at all. In contrast, BI is bought by virtually every company, but skimping on it and failing to get full coverage is all-too common.
If a major customer that owes you a lot of money goes out of business or doesn’t pay you for one reason or another, it could be a financial catastrophe. There’s probably greater risk of this today because manufacturers often sell to companies worldwide. It’s difficult enough to collect from an insolvent domestic client, and may be even tougher to get a foreign customer to pay up.
Your property insurance policy typically covers you if you can’t collect because your accounts-receivable records have been destroyed by a covered peril like fire, theft or vandalism. But it offers no protection against deadbeats who won’t or can’t pay.
However, you can insure your credit risks. Determine how much credit risk you’re exposed to. If your company does extensive business on credit, you probably need insurance.
Ask your broker to research the market and find out what credit insurance would cost. Before offering a quote, the insurance company will first investigate the financial stability of the customers you extend credit to. If they’re in good shape and are steady bill payers, you’ll get a good rate. But if their credit is shaky, you’ll pay more.
You can tailor a policy to meet your exact needs by selecting the amount of credit coverage, size of deductible and policy features.
BI insurance covers the income you’d lose if your plant were to shut down because of an insured peril such as a fire, flood, storm, earthquake or terrorism. There’s a type of business interruption insurance that can even cover you if you have to shut down because a key supplier’s plant is offline.
No one wants to think about disasters, but full BI coverage is one of the most vital protections any business can have. In the wake of Hurricane Katrina, many business owners testified that BI saved their business.
Marjorie Young is vice president of E.G. Bowman Company, Inc., a full-service commercial lines insurance brokerage and loss control company in New York City that serves clients regionally and nationally. She can be reached at firstname.lastname@example.org or 212-425-8150.