Check Your Receivables Coverage in Property Insurance

We all have property insurance and for most businesses we have, or should have, coverage on our accounts receivable as part of the overall policy. But often I find it’s not enough.

Many times the property insurance was issued a number of years ago and coverage for accounts receivable could have been set low, say $25,000. Well, insurance is renewed from time to time and it’s easy to overlook this detail. It’s especially important if the business has grown and now the receivables total $100,000.

I had a client raise the question of, “How would you lose receivables in a fire?” Easy as in many cases backups are made and stored in the shop. So a fire might wipe out the computer system and take the backups at the same time. Also understand that storage media doesn’t have to burn. All it has to do is get hot enough to melt which is why a fire proof safe on the premises usually isn’t adequate either because it’s usually not heat proof. I have also seen receivables lost in a flood as well as had computers stolen resulting in data loss. As for cloud backup, receivables not uploaded could be lost and I’ve seen backups fail.

“But,” the client said, “Customers would not stop owing me money if I had a fire. “

Correct, but whether they will pay you unprompted or not is the issue. If you don’t have copies of invoices or other backup, some companies won’t pay which is the reason for insurance; it can cover any gap.

“Wouldn’t I still have backups?” Yes, if they’ve been taken off-site and/or backed up to the cloud which is what many do today. But backups can fail as I mentioned.

Any unforeseen event that would result in the loss of your accounts receivable is the reason for the insurance. Fortunately, increasing your accounts receivable coverage from a minimum of $25,000 to $100,000 will hardly make a difference in your premium.

So why wouldn’t you increase it? Usually it’s just an administrative thing.

So how much in accounts receivable does your property insurance cover, if anything? It’s worth a quick check.