Small-business owners have a lot on their plates. Managing multiple moving parts, wearing many hats, and juggling the responsibilities of work and home can prove challenging.
In the midst of all this, something may occur that shouldn’t: a lapse in insurance coverage.
Whether the premium payment was overlooked or other circumstances caused the owner to cancel a policy, when there is a lapse in coverage, the business is left without insurance protection.
This isn’t a good thing. In fact, it can have serious repercussions. Four of these consequences top the list.
1. No net. While a tightrope walker can perform without a net, it’s risky. The same goes for business owners, although the risk is usually even higher. When insurance lapses, the business is left with no liability coverage, no property insurance, and no funds for defense during litigation. One incident without insurance to cover the costs could potentially close the company’s doors forever.
2. No discount. In most cases, businesses can receive a continuous coverage discount for maintaining constant coverage. Avoiding any lapses demonstrates stability to insurance companies, and they reward it with better rates. If the business experiences a lapse in coverage that lasts more than 30 days, this discount is usually lost.
3. No long-tail coverage. Maintaining constant coverage with the same insurance company offers advantages. One is long-tail coverage. If you carry a liability policy that includes a standard completed operations portion, the work your company performs is typically covered for the entire duration of the policy.
For example, if you opened the policy four years ago and you are sued for something that happened three years ago, the liability policy will kick in, even if the project in question is not a current job. If you experience a lapse in coverage, you will no longer be eligible for this long-tail coverage.
4. No reputation. A lapse in insurance coverage can hurt the reputation of your business with insurance underwriters. Since most small-business coverage is handled on a case-by-case basis, the underwriter must decide in each situation whether a business is a good fit or worthy of risk. If they see a lapse (or multiple lapses) in coverage, underwriters will be less likely to want to extend the coverage to the company. This can mean denial of coverage or higher premiums.
There may be some situations in which a lapse in coverage seems entirely appropriate, such as for seasonal businesses. However, it’s important to weigh the consequences of this lapse with the benefits of maintaining continuous coverage. And for those who may believe that a lapse in coverage is “no big deal,” it’s important to remember the risks involved when running a business without protection.
To keep insurance coverage in place, try not to think of it as an expense. It is a necessity. By avoiding any lapse in coverage, you’ll set your business up for better savings, smoother operations, and greater success.
We’re here as your resource and are happy to answer any questions you have about continuous coverage and how it can benefit your business.