Tips on insuring your business to mitigate financial loss Featured

9:01pm EDT October 31, 2011
Tips on insuring your business to mitigate financial loss

Insuring your business against an emergency is a vital and prudent step to take when owning a business. Most businesses have workers’ compensation and insure their buildings, but there are other types of insurance that business owners may want to consider as well. Choosing the right type of insurance for your business can seem like a daunting task; however, when you choose the right insurance, it can protect you and your business from substantial loss. Many businesses are underinsured because of the expense, but in the event of a crisis, insurance policies can help your company weather the storm and reduce financial loss.

Smart Business spoke to Jim Terrell and Donna Mittendorf of Comerica Bank about some of the most common types of insurance that could help safeguard your business.

What is business interruption insurance?

Terrell: Many businesses that close due to a fire or some catastrophic situation never reopen. It’s not because they didn’t insure their building, but rather it’s because the owners relied on their business to provide them with a steady paycheck. Business interruption coverage pays your lost salary as well as your ongoing expenses, including payroll of key employees and the extra expenses to get back into business more quickly. It could be good coverage to have because if the insurance company is slow taking care of the claim, you’re on their payroll.

What is the benefit of accounts receivables insurance?

Mittendorf: Accounts receivables insurance, or credit insurance, protects your business if your clients don’t pay you. This type of insurance can be particularly useful for new, rapidly growing businesses or if you have foreign clients. Accounts receivables insurance protects your company against loss on receivables, including default, bankruptcy or simply slow payment. This insurance can also protect a company that is unable to collect receivables due to loss of underlying records; for example, ones lost in a fire or flood.

What types of companies could benefit from having product liability insurance?

Terrell: Companies that manufacture, wholesale, distribute or retail a product may be liable for its safety. Product liability insurance protects against financial loss as a result of a defect in a product that causes injury or bodily harm. The type of product you sell should be factored into the coverage amount.

What is employment practices liability insurance?

Mittendorf: This insurance covers allegations of discrimination, sexual harassment and wrongful termination. Many businesses, especially small businesses, may forego this type of insurance because they have few employees or they consider themselves fair employers. That may be the case, but that doesn’t mean a scorned employee won’t allege otherwise. These types of allegations are by nature personal affronts to business owners. The advantage of this insurance is that it has a tendency to depersonalize it as much as it can be.

Is there insurance for home-based businesses?

Terrell: Yes, there is, since most homeowners’ insurance policies do not generally cover home-based business losses. Depending on what you need, you can add riders to your homeowners’ policy. Remember that homeowners’ policies only cover certain facets of home-based businesses, so you may need to purchase additional policies to cover other risks, like general and professional liability insurance.

What if my business has vehicles I need to insure?

Mittendorf: If you have a business that needs vehicles, you should consider commercial auto insurance. This type of insurance insures one or multiple vehicles with liability and property damage liability, as well as additional vehicle coverage like comprehensive and collision coverage. If your company has numerous vehicles and drivers, ask your insurance agent if you qualify for a fleet insurance policy.

How often should I review my insurance coverage?

Terrell: Generally speaking, you should assess your insurance on an annual basis. As your business grows, your liabilities grow and you may need additional or different types of insurance. You don’t want to be caught underinsured if something happens. You should discuss changes in your business with your insurance broker so he or she can determine if your current insurance is still meeting your business’s needs.

JIM TERRELL and DONNA MITTENDORF are senior vice presidents for Comerica’s Texas Business Banking Division. Comerica Bank is the commercial banking subsidiary of Comerica Incorporated (NYSE: CMA), the largest U.S. banking company headquartered in Texas, and strategically aligned by three business segments: The Business Bank, The Retail Bank, and Wealth Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Dallas/ Fort Worth, Houston, San Antonio, Kerrville and Austin, Texas, Comerica Bank locations can be found in Arizona, California, Florida and Michigan, with select businesses operating in several other states, as well as in Canada and Mexico. To receive e-mail alerts of breaking Comerica news, go to www.comerica.com/newsalerts.