Business Insurance Lapse: What Happens When Your Policy Expires

Finding low-cost insurance for your company or profession can be daunting, but with the help of a business insurance broker, the task is less onerous.  

However, a business insurance policy that lapses, expires, or is cancelled by a provider can leave you uninsured and exposed to paying for costly damages or lawsuits on your own. Should it happen to you, it can make getting a new policy difficult and more expensive.

What Can Cause a Lapse in Business Insurance?

A few things can trigger a lapse in your business insurance policy, including:

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• You did not renew the policy before it expired. Business insurance policies are typically one-year contracts between you and an insurance provider that needs to be renewed annually. If you don’t renew your policy on time and it expires, that leads to a lapse in coverage.

• You were unable to pay your monthly premium on time. A common reason for policy lapses, if a policyholder does not pay their monthly premium on time as agreed, an insurer may cancel the policy following a brief grace period.

• An insurer cancels a policy because of misrepresentation or misleading information. An insurance provider may cancel a policy if a business owner or independent professional gives false or misleading information about their operations when applying for coverage.

• An insurer cancels a policy due to a fraudulent claim being filed. Fraud is among the top reasons insurance premiums rise. If an insurer suspects fraudulent activity related to a claim being filed, it can lead to a policy being cancelled.

• Failing to update your business’s information upon renewal. When you renew a business insurance policy, updating your company’s information is vital. For example, your broker and insurance provider needs to know if you are expanding your operations or offering new products and services.

• Failing to comply with your industry’s or profession’s mandated regulations. Some industries or professions are required by law or rules to follow specific standards, hold a type of valid licence, and carry a particular amount of coverage. If a business fails to comply with these requirements, the policy may lapse or be cancelled.

What Risks Do You Face If Your Small Business Insurance Policy Lapses?

Running any business without insurance protection is extremely risky and can lead to many unpleasant scenarios, such as:

• No Coverage for Claims

When a liability insurance policy lapses or is cancelled, the business loses its protection against various liability claims. That means that if a third party (such as a customer, employee, or vendor) files a lawsuit or claim against the business for bodily injury, property damage, or other covered liabilities, the business owner will have to bear the costs of defence and any potential settlement or judgment out of pocket.

• Financial Liabilities

Without liability insurance coverage, the business owner may be liable for any damages or losses incurred due to a covered claim. That could risk the owner’s assets, such as their savings.

• Costly Legal Bills

Defending against a lawsuit can be expensive, even if a business owner is not at fault. Legal fees, court costs, and related expenses can quickly add up without insurance.

• Damage to Your Reputation 

A liability claim or lawsuit, even if unfounded, can harm a business’s reputation. Customers, suppliers, and partners may lose trust in your company, leading to declining revenue and opportunities.

• Breach of Contracts

Many customer or partner contracts you sign require your business to maintain specific insurance coverage. If the policy is cancelled or lapses, you may be in breach of contract, leading to legal issues or financial penalties.

• Regulatory Compliance

Some industries and professions have legal or regulatory requirements mandating they carry liability insurance. Failing to maintain proper coverage can result in fines, penalties, or even a business licence suspension.

• Loss of Business Opportunities

Your clients may require you to provide a valid certificate of insurance (COI), or they won’t hire or do business with you. That can lead to losing out on potentially lucrative customer contracts.

• No Business Interruption Protection

If your business is forced to close temporarily due to damage to your commercial property and inventory, without business interruption insurance, your ability to pay your overhead costs and continue to operate can be threatened and may lead to significant financial strain and possible bankruptcy.

What to Do If You Have an Insurance Lapse

If your insurance policy lapses, expires or is cancelled, it’s critical to take immediate action to address the issue. Among the steps you should take include:

• Contact Your Insurance Broker 

Contact your insurance broker right away to confirm the reason for the lapse or cancellation and find out if it can be reinstated or if you can get a new policy. A Zensurance broker can help if you have difficulty getting a new policy.

• Determine the Gap in Coverage 

Discover the period during which your company was operating without insurance. It will help you understand the potential risks the business may have been exposed to during that time.

• Address Immediate Risks

If any urgent matters or potential liabilities arise during the coverage gap, take action to mitigate them. If necessary, seek legal advice from an experienced lawyer.

• Get a New Policy

Work with your broker to get a new liability insurance policy immediately. Although a lapse in coverage can create issues getting reinsured, obtaining coverage may still be possible even after a lapse or cancellation.

• Review Your Insurance Requirements

Assess your insurance needs to ensure the new policy provides adequate coverage. The coverage limits and policy features should be tailored to your business’s specific needs.

• Comply with Your Contractual Obligations

If the lapse or cancellation affected any contracts or agreements that required liability insurance, promptly inform the relevant parties of the renewed coverage.

• Address the Cause of the Lapse or Cancellation

Identify the reason for the lapse or cancellation and take steps to prevent it from happening again. For instance, if you were late making monthly premium payments, talk to your broker about how you can change your payment plan so it doesn’t occur again.

• Communicate with Your Stakeholders

Keep employees, partners, and stakeholders informed about the situation, and let them know once you have new insurance coverage in place.

4 Ways to Prevent a Business Insurance Lapse

Here are four ways you can prevent a lapse in your business insurance coverage:

1. Partner With an Insurance Broker

Work with an experienced broker who understands the specific insurance needs of your business. They can provide guidance on policy options and keep you informed about any changes or updates related to your policy.

2. Set Up Automatic Payments

If you pay your insurance premium monthly, arrange for automatic withdrawals from your bank account to help ensure payments are made on time. It also makes it easier to maintain your budget and track what you paid and when.

3. Stay Informed About Regulatory Requirements For Your Industry

Be aware of any legal or regulatory requirements related to insurance in your industry or profession and comply with them to avoid potential penalties or fines.

4. Renew Your Policy Before It Expires

Don’t wait until the last minute to renew your policy. You’ll typically receive a notice 30 to 60 days before your existing policy is due for renewal. Starting the renewal process sooner rather than later gives you time to address potential issues. During the renewal process, if there are any changes to your operations, let your broker know so they can adjust the policy accordingly and maintain your coverage.