Business Risks: What Happens When Your Business Insurance Lapses?
Business insurance is one of the most important things you need to prepare when launching your start-up or building your business. Even for companies that are already well-established in their industries, insurance is still just as important as it ultimately protects your assets and overall organization. That said, an insurance lapse is perhaps one of the most common instances that occurs in a small business.
A business insurance lapse may often occur by accident, where you forgot to renew your policy or make a payment when it was due. Whatever the reason may be, it is not unusual to hear about a business insurance policy lapse, but that does not mean it comes without consequences. Get to know more about the implications of a lapsed insurance, and why it is critical to keep your insurance policy updated at all times.
What Does a Business Insurance Policy Lapse Mean?
A lapsed insurance essentially means a terminated policy caused by failure to pay premiums on time. When this happens, you will no longer get the benefits stipulated in your insurance policy. Thus, in the context of business insurance, it means that you will not be covered for possible lawsuits, property damage, or loss of business income.
What Happens If I Let My Business Insurance Lapse?
1. Loss of Coverage
The most immediate effect of an insurance lapse is the loss of coverage. In essence, it is almost as if the policy is non-existent since it will no longer be active. If any injury happens within your business premises or a lawsuit is filed against your company, you become responsible for shouldering any related costs.
2. Legal Requirements
If your business insurance lapses and you do not carry workers’ compensation insurance, you can get into a tricky legal situation. Workers’ compensation is required by law to protect employees from any and all industries. Regardless of how short the time is that you do not carry this insurance, you already risk getting penalized for breaking the law.
3. Increase in Insurance Rates
After your business insurance lapses, your insurance provider may no longer be willing to issue you another policy. In case they do, you will be considered a “high-risk” case as insurance companies will assume that there will be another possibility of lapsed insurance in the future. Due to the higher risk perceived, your insurance premiums will increase.
4. Natural Disasters Can’t Always Be Prevented
Natural disasters and calamities are beyond your control, but they can be destructive and cause massive damage to your company’s property or assets. If this happens and your business insurance has already lapsed, you may be burdened by the financial costs needed to repair or rebuild the damage that has been done.
No matter how sturdy your building may be or how safe your location may be, there will always be a risk for natural disasters to strike. Thus, it is best not to get a lapse in insurance to avoid destructive consequences.
5. Malpractice is a Serious Concern
Business insurance comes with professional liability coverage, which protects you from potential cases of malpractice. Regardless of what industry you operate in, malpractice can happen at any time, and without an active insurance policy, your business is vulnerable to lawsuits.
6. You’re Responsible For Your Employees
Your employees’ actions can have positive and negative repercussions on your business. If your employee gets injured or hurt on the job or sues you for disputes or arguments, your insurance can help handle the associated costs, but if your insurance lapses, then you will need to take care of the matter on your own.
In a way, there is a more significant burden placed on you as you become the sole person responsible for your employees and their actions. If, for example, an accident occurs in your workplace, whether it be on the employee or a customer, you will be responsible for the costs arising from the claim.
Insurance companies are not required to give backdated coverage, but in case your provider does, you will need to procure a no loss letter from the customer to guarantee that no one was injured.
7. Customers Are Unpredictable
While you can certainly take extra steps and precautions to ensure that customers are safe within your company’s premises, you still cannot predict what may happen to them, but you become responsible for those instances.
What if someone spills water by accident, and this leads a customer to slip and fall? What if a member of your company commits an error while providing service to a customer? When these things happen, you will be held liable for the incidents if your insurance has already lapsed.
8. People Besides You Drive Company Vehicles
Similar to the point made about you being responsible for your employees, you will also be accountable for what happens behind the wheel with company vehicles. Business insurance policies can offer commercial auto insurance for company-owned vehicles, protecting anyone who operates them.
As such, a business insurance lapse will cause you to be liable for accidents that may occur while someone else is driving the company’s vehicles. Given that these situations are out of your control, it is best that you have insurance to protect you from unforeseen circumstances.
Consequences of Lapsed Commercial Coverage
The significant consequence of lapsed insurance is that you expose your business to multiple risks that can lead to unwanted events. Without any of your insurance policy benefits, you become responsible for anything and everything that happens within your business. Even though you are not directly at fault, you may still be held liable for accidents or injuries that happen in your workplace. If any of your properties get damaged or destroyed, you have to pay for repairs or replacements to get your company up and running again.
You may be thinking, what happens if your insurance lapses? Typically, insurance companies will give an allowable period after your missed payment, where you have the chance to reinstate your policy by following specific requirements. Aside from settling your missed payment, you also have to pay interest, submit a health declaration form, and prove that your health has not changed since you took out your policy.
In some cases, insurance companies may allow a “second” grace period or a specific number of days where you can reinstate your policy after a lapse in coverage. Some may allow you to do this by simply paying your premiums, while others may charge interest, but you no longer have to submit a health declaration either way.
All in all, the key thing to remember is that the quicker you act after an insurance lapse, the higher the chances that you can get your policy back without too much work. The consequences of allowing your business insurance to lapse can be devastating, so you have to be aware of your payment due dates. Though it may happen reasonably often among business owners, it does not mean that you should allow it to happen.
How to Avoid a Lapse in Coverage
Now that you understand the consequences of a lapse in coverage, you can implement measures that can help you avoid running into such a situation. No matter what type of business you have, an insurance policy is crucial to ensure that you and your company are protected.
The first and most apparent way to do that is to pay your premiums on time. It is natural to sometimes forget about it, but insurance companies will often provide a grace period once your deadline is up, so you must be aware of this to ensure that you pay on time. During the grace period, you will still be covered by your policy’s benefits, so it is not yet a cause of concern. However, if you fail to pay after the said period, you will get an insurance lapse.
One way to avoid forgetting payments is to automate it by using your credit card, which will automatically send the payment on the due date or agree with your bank to settle the payments on time. Setting up an automatic payment scheme will be convenient and eliminates the risk of getting lapsed insurance.
Insurance providers will usually send regular updates to clients to keep them informed about their policy status and upcoming deadlines. As such, you must keep your communication lines open and check them frequently to ensure that you hear about all the important announcements. In case you change any of your details, such as your contact number or email address, you must inform your insurance company to avoid missing out on the updates.
Allowing your business insurance to lapse may lead to several consequences, some of which can have damaging effects on your company. When this happens, you not only risk shouldering high financial costs but also risk not finding another carrier who is willing to offer you a policy. Thus, keeping your business insurance policy in check must be a regular habit that you practice to avoid running into potential issues.