How to Cancel a Small Business Insurance Policy

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What Steps Do You Need to Take to Cancel an Insurance Policy?

If you do want to cancel your policy, the steps are straightforward. 

Start by speaking to your existing insurance provider or broker and find out if there is any outstanding balance owing, or how much you may receive as a refund. Inform them you wish to cancel your policy and explain why. You may be asked to sign a cancellation request form to confirm the date of cancellation.

The cancellation process will also differ depending on your policy type and whether your liability insurance (e.g., general liability) is a claims-made or occurrence-based policy. A claims-made policy covers claims resulting from your negligent actions and filed during your policy’s active period. An occurrence-based policy is designed to cover losses which occur during the policy’s period regardless of when a claim is filed. 

For example, if you have an errors and omissions (E&O) or professional liability claims-made policy that you intend to cancel, you might want to consider buying an endorsement to that canceled policy known as a ‘tail rider’ or ‘extended reporting period’. This will allow you to report any claims against you after your original policy has expired or cancelled that arose while it was in force.

Either way, it’s wise to speak with your broker or insurance provider before terminating your coverage.

What Are the Risks of Cancelling a Business Insurance Policy?

Cancelling a business insurance policy can expose you to risks and unintended consequences. Therefore, deciding to do so should be weighed carefully before taking action. On that note, speaking to a licensed broker is worthwhile to get their perspective beforehand.

Some of the risks you face when terminating your policy may include the following:

• You’re leaving yourself exposed financially to cover damage or loss on your own if, for example, a fire rips through your workplace or a burglar breaks into your office and vandalizes or steals your electronics, inventory, or other items.

• Suppose you’re named in a third-party bodily injury or property damage lawsuit. For instance, if a customer visiting your commercial property slips, falls, and is injured. They could sue you for damages which you would be required to pay out of pocket.

• It could compromise the contracts you have in place with customers, business partners, and suppliers that require you to carry insurance.

• Your professional or business license may state that you have a certain type and amount of insurance coverage. Without insurance, your license could be suspended.

• If you own a cafe or restaurant that serves alcohol, you are required by municipal and provincial authorities to have insurance, or your liquor license could be revoked.

• If you lease or rent a commercial property, your landlord may require you to have insurance. Without it, you would be breaching the lease contract.

• If you wish to obtain a loan from a financial institution, they typically require your business to be insured, or they won’t provide funds. If you already have a loan, by canceling your policy, you may be in default on that loan. That could lead to any equipment you lease from another company being repossessed or even losing your place of business.

• Terminating an active policy midterm and applying for a new one at a later date could raise a red flag for insurance providers. They may view you as a greater risk and either refuse to offer you a policy or, if they do, at a higher annual premium. 

• If you have business vehicles, you are required by law to have insurance. Cancelling your commercial auto policy without another policy in place could cause legal issues if you are driving the vehicle without insurance. Furthermore, if you get into a collision or if your vehicle is damaged in a hit-and-run incident or vandalized, you’re on your own to pay the costs.

Can Switching Insurance Providers Help You Save Money?

Switching insurance providers midterm before a policy expires is not unusual, but whether or not it will save you money depends on your policy type and its terms and conditions. 

The key is to ensure your coverage is maintained between your existing policy and the new one you want to purchase. A lapse in coverage can expose you to financial risk.

Other Ways to Lower Your Insurance Bill Without Cancelling a Policy

If your primary reason for cancelling your existing business insurance policy is saving money in a challenging economy, there are other options to consider to lower your insurance bill without paying fees or eliminating your coverage.

A licensed Zensurance broker can assist you by looking for ways to reduce your overall premium, such as increasing your deductibles, lowering your coverage limits, or updating your policy to reflect changes in your services. For instance, if business has slowed and it appears you won’t reach your projected revenue, you might qualify for a lower premium. That’s a better way to go than cancelling your policy outright.

Let us help explore your options and provide you with a policy that adequately protects your finances and business at an affordable cost. Fill out an online application for a free quote and let our insurance experts set you up for success without risking your livelihood.