Thinking of Canceling Your Business Insurance? Check These 6 Things First
Before you cancel your business insurance, make sure you don't make these six mistakes. Hasty cancellations can lead to increased premiums and risk exposure.
Small-business owners and tech contractors have to make tough decisions about their budgets, but if you're thinking about canceling your business insurance, you might want to read this article first. When a business cancels its General Liability or Errors and Omissions Insurance (also known as Professional Liability Insurance), there can be some unintended consequences, including paying higher premiums down the road and being re-exposed to past liabilities.
To make sure you're not making a mistake when you cancel your business insurance, consider these six things:
- Canceling and restarting business insurance jacks up your premiums. Insurers often increase your premiums when you restart a policy. Let's say that one year after you cancel, you decide to get a new Professional Liability policy. Your insurer charges you a modest five-percent increase in your premiums. The typical premiums for Profession Liability Insurance for a tech contractor are between $1,000 and $1,500. This five-percent increase would mean you'd be paying an additional $50 to $70 a year. That doesn't sound like much, but in reality, that adds up to about one month's worth of coverage.
- Timing is everything when switching policies. As we saw above, a lapse in coverage will increase your premiums. The same warning applies to you if you're thinking about switching policies. Avoid lapses by making sure one policy expires the same day that your new policy starts. Otherwise, you could end up paying increased insurance costs.
- Canceling business insurance means you lose out on coverage. Obviously, you'll lose coverage when you cancel your insurance, but there's more to it than just that. Errors and Omissions Insurance is usually a "claims-made" insurance policy – that means it insures your past work and pays for lawsuits as long as the claim is related to work you did while you had that particular E&O policy. However, the second you cancel your policy, you'll no longer be covered for any liabilities from your past work. Unless you pay for additional coverage when you start a new policy, you won't be covered for lawsuits related to work you did before the new policy started. Canceling E&O Insurance means old IT contracts won't be covered by your new policy without the appropriate endorsements.
- Restarting a Professional Liability Insurance policy means you'll need a "tail rider" added to your next policy. Say you've cancelled your policy and need to restart your coverage a month later in order to sign a contract. Is there a way to get your new E&O policy to cover your old IT work? You can add a "tail rider" to your new policy, which covers you for lawsuits that occurred before you started your most recent coverage. Unfortunately, E&O policies with tail riders cost more. While you may think you're saving money by canceling your insurance now, you'll end up losing those savings when you pay for a tail rider and increased insurance premiums.
- Adjusting your coverage may be the wiser option. If you're trying to save money on your insurance, talk with your insurance agent. You might be able to adjust your coverage and lower your premiums. Say you haven't been able to meet your projected revenues. You might qualify for a lower premium and lower coverage. (If you're looking for quick insurance price quotes, use TechInsurance's online insurance application.)
- Getting cheaper coverage isn't necessarily better. As a small-business owner, you're always looking for ways to save money, but be wary of "cheap" insurance. While you might be able to save a little money on your insurance, you could end up with low-quality coverage that won't actually cover your business. How do you know which insurance companies to trust? Look for insurance brokerages that sell coverage from A-rated providers. Also, look for companies that work with IT professionals. They'll be able to make sure your Professional Liability policy includes third-party Cyber Liability coverage and other coverages relevant to the IT field.
To learn more about the ins and outs of your Professional Liability coverage, see "When Can Cyber Liability Claims Be Made against You?"