7 factors to consider before canceling your business insurance
Business insurance cancellations can lead to increased premiums and risk exposure. Before you cancel your policy, first consider these factors.
Can I cancel my business insurance?
If you’re making tough budgeting decisions, canceling your business insurance might be tempting. But the decision to cancel your business’s general liability insurance or errors and omissions insurance (E&O) could result in unintended consequences. You may face higher premiums down the road and exposure to other risks.
Here are seven key considerations to weigh before making your decision. These include factors like premium hikes, additional fees, and liability.
Consider these potential risks before canceling your business insurance, so you’ll have what you need to make an educated decision.
1. Canceling and restarting business insurance can hike up your premiums
If you cancel your business insurance policy, it could save you money in the short run. But if and when you reinstate your policy, you may have to pay additional charges and fees.
Once you choose to restart your policy, insurers will often increase your premiums, so tread carefully.
For instance, let’s say that one year after you cancel your business insurance, you decide to initiate a new E&O policy. Your insurer then charges you a modest 5% increase in your premiums. If the typical premiums for errors and omissions insurance for a tech contractor are about $1,000 annually, this means you’d end up paying an additional $50 per year. While that may not sound like much initially, that 5% increase in your premium adds up to nearly an entire month’s worth of coverage.
2. Timing is everything when switching policies
If you decide to cancel your insurance, the lapse in coverage can increase your premiums. But if you're renewing or switching coverage, you could also end up paying more if you accidentally have a lapse in coverage between the old policy and the new effective date.
Plan accordingly by making sure that your old policy expires the same day that your new policy starts. Otherwise, you could end up with a higher bill for your insurance coverage.
3. Canceling insurance means you lose out on coverage for past work
Errors and omissions insurance is usually a claims-made policy. That means it won't cover claims filed after the policy is canceled, even if the claim involves an incident that took place while the policy was in effect.
As soon as you cancel your policy, you’re no longer covered for any liabilities from your past work. And unless you pay for additional coverage when you start a new policy, you’ll be susceptible to lawsuits related to work you did before the new policy started.
Canceling E&O insurance means that old contracts won’t be covered by your new policy without the appropriate endorsements, so weigh your decision carefully before committing to cancellation.
4. You may have to pay a fee for early cancellation
Another important consideration is that you might have to pay a fee if you cancel your business insurance early.
Your insurance provider may require that you pay a short-rate cancellation fee for dropping coverage before the policy ends.
Make sure you read your policy thoroughly before acting and ask your agent any questions you may have about early cancellation.
5. Restarting an errors and omissions policy means you'll need a tail rider added to your next policy
Let’s pretend for a moment that you’ve canceled your policy, but in order to sign a contract, you need to restart your coverage a month after ending it.
How do you get your new E&O insurance policy to cover your old work?
You can add a tail rider to your new policy, which will cover you for lawsuits that occurred before you started your most recent coverage.
But E&O policies with tail riders come at a cost. You may lose anything you saved by canceling insurance, if you have to reinstate your policy with tail coverage.
6. Adjusting your coverage may be a better option
Talk to your insurance agent if you’re pinching pennies and considering insurance cancellation. You might be able to adjust your coverage and lower your premiums. If you’ve been struggling to meet your projected revenues, you might qualify for a lower premium and lower coverage. And, if you’re looking for quick insurance price quotes, make use of TechInsurance’s online insurance application.
7. Cheaper coverage isn't necessarily better coverage
Be wary of insurance policies marketed as “cheap.” While you might be able to save a little money on your insurance premium by purchasing cheaper coverage, you could end up with low-quality coverage. It may not actually cover your business, and leave you unprotected.
So how do you know whose coverage to trust?
Seek out insurance brokerages that sell from A-rated providers, as well as those that work specifically with IT professionals. They’ll have the resources and experience necessary to ensure your E&O policy includes cyber liability insurance and other coverage most relevant to the IT field. That way, you'll have peace of mind about your policy and your protection.
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