6 Gaps In Business Insurance That Can Destroy Cash Flow

by Doug Smith, President, The Woodhaven Group

Business insurance can be a godsend when something unexpected happens that can cause the daily operation of your business to be interrupted.  It is cash well spent.

Most owners and CEOs do a good job of anticipating what needs to be covered and making sure the company has sufficient insurance.

But we are living in a different time.

What used to be enough insurance coverage may not be sufficient today.  It is more important than ever that your insurance agent understands your business and works closely to protect the company and it’s shareholders.

Here are 6 areas to discuss with your insurance agent and assure yourself that in case of loss the company is covered to the extent it needs to be.  If not, the gap will come out of the cash flow of the business:

Business Income Insurance:  If your business is destroyed by fire, tornado or some other catastrophe you need to cover income and expenses until the company can be fully operational again.  Most businesses have coverage in this area.  The problem may occur if your insurance coverage levels are for the size of the company 5 years ago.  Has the coverage been updated to reflect your growth.  Maybe the policy got switched to a house account at your agency and no one has updated this important coverage.  Also, make sure you are clear what conditions have to exist to get reimbursement.  That may vary by industry and type of company.

Law and Ordinance Coverage:  You have successfully grown the company in an older building to save on overhead.  Now it burns to the ground.  Check now to see if your coverage is for replacement to the level it was before.  If it is then you may have a gap if building codes have been modified.  There may be new construction codes to address hurricane, tornado or other environmental needs.  I have also seen aesthetic codes requiring newly constructed buildings to have brick exteriors.  Ask your agent about law and ordinance coverage and if it is applicable to your business.

Business Personal Property:  Do you have a business that requires taking important tools and equipment offsite?  Some business personal property insurance policies only cover  loss within 1000 feet of your property.  If you put tools in a van and go to another location you may not be covered.  The solution would be “transportation coverage.”  Ask your agent to verify if this is an issue with your policy.  If it is then it needs corrected now.

Electronic Data Processing Insurance:  We are in the age of the computer.  Viruses, power surges and humidity levels could damage your software or hardware and result in loss of important customer data.  This could mean you no longer can access accounts receivable reports or customer databases.  If your company has developed an in-house CRM system you could have a real problem if the data is infected by a virus.  It is called EDP insurance.  Do you have it?  Do you need it?

Cyber Liability Insurance:  This was not necessary years ago.  However, if today your company has a website that captures email addresses and sends enewsletters or sells products over the internet, this may be coverage you need.  Issues can range from computer viruses unknowingly being passed on, identify theft or even copyright violations arising from content on your site.  Ask your agent what coverage is appropriate for your type of business.

Umbrella Liability Insurance:  This is additional liability coverage on top of regular liability coverage.  Do you have enough umbrella liability?  If your company vehicle hits a surgeon and he cannot use his hand to operate again are you sufficiently covered?  Maybe your company is not at fault but many umbrella policies will cover legal fees to defend your position.  If you have high enough liability coverage it gives the carrier all the more reason to mitigate the claim down or defend you against frivolous lawsuits.  Umbrella policies tend not to be expensive so make sure you have enough coverage.

As you can see, insurance has to be managed like everything else in your business.  Do not take for granted that your coverage is sufficient.  

In order to protect your business cash flow take the initiative to make sure your insurance agent is up to date on all aspects of your company.


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