If you’re forced to temporarily shut down your business, canceling some of your business insurance policies may seem like a smart way of cutting costs. For instance, because a third party is unlikely to suffer a slip and fall injury at your closed business premises, you may consider general liability coverage to be an unnecessary expense. However, the long-term costs of canceling business insurance can outweigh the short-term cost savings. Here is what to consider before you cancel your insurance coverage.
Insurance companies don’t allow policyholders to conditionally suspend their policies and start them over later. In case you cancel your policy today, you’ll need to get a new policy later. If you have gaps in insurance coverage, insurers may view your business as a bigger risk. So canceling coverage will likely increase your insurance rates. Furthermore, if you cancel your policy before it expires, you won’t get a full refund. Insurance policies often come with “Minimum Earned Premiums” clauses. If your insurance policy has this clause, you’ll still need to shell out a percentage of your total premium in case you cancel coverage.
You’re likely required to carry certain business licenses. You may also be required to have special permits if you’re in certain industries, like construction. Businesses are usually required to have workers’ compensation or general liability insurance policies before they’re issued with permits and licenses. You may lose your permits and licenses if you choose to cancel the mandated insurance policies.
If even when temporarily closed, businesses can still be exposed to vandalism and theft risks. These risks increase with unattended and closed storefronts. If your business has a physical office or storefront, you likely need commercial property insurance. Landlords also often require tenants to get this policy before they lease out their property. Without commercial property insurance, you’ll be forced to cover the expenses of replacing or repairing stolen or damaged property.
Even with a closed storefront, you may still be offering delivery services. Therefore, canceling your hired and non-owned or commercial auto insurance would be a bad idea because personal auto insurance typically doesn’t cover incidents that happen while you’re driving for work. Canceling either hired and non-owned or commercial auto insurance, you’d be personally liable for any loss caused by your business vehicles.
If you rely on financing, say, a loan for your equipment, or a mortgage, your lender will likely require you to have certain insurance coverages. If you drop the mandatory insurance, you may be considered to be in default, even if you’re making your loan payment. Your mortgage lender can foreclose your building if you default on the mortgage. Moreover, your lender who financed your equipment can repossess them if you default on the loans.
When you close your business temporarily, you should not necessarily cancel some of your business insurance policies in order to save money. Instead, work with your insurance agent to adjust your premium payments or coverage as necessary. At CF&P Insurance Brokers, we will help you get cost-effective and customized business insurance. Contact us today.