A lapse in small business insurance means that your insurance policy has been terminated. It can occur as a result of failure to pay the premium or because the policy contract becomes void for other reasons, such as not meeting the insurance carrier’s requirements. But regardless of the reason, there can be repercussions of a lapse in insurance.
Here are at least four reasons a lapse in small business insurance is bad.
1) Reinstatement Fee. If you allow your insurance coverage to lapse, you insurance carrier will have to prepare the paperwork again to reinstate your policy. There are costs involved in preparing this paperwork, which you will be responsible for. If you’ve only had a very short-term lapse in insurance or you are a first-time lapse in insurance offender, your insurance carrier may waive the reinstatement fee. That is, your insurance carrier might overlook a one-time lapse in insurance. However, be prepared to sign a statement of loss, which denotes that you didn’t have a claim while you had a lapse in coverage.
2) Policy cancellation. If you are a habitual offender in terms of letting your insurance lapse, you could be subject to a cancellation of your insurance policy. Since insurance carriers review small business insurance applications on a case-by-case basis, if you have a past history of non-payment and insurance lapses, it may make it more difficult to get signed on with another carrier.
3) Loss of long-tail coverage. Depending on the policy, policy holders can be rewarded for lack of claims, but also for continuous coverage. You stand to lose this advantage if you have repeated or long lapses. If your policy lapses you may not be covered for a claim that has already occurred but not yet reported.
4) No insurance. Potentially the most devastating reason a lapse in small business insurance is bad is that you don’t have insurance. Depending on the policy, this means you don’t have general liability, property coverage, commercial auto coverage, defense costs coverage, and more.
Most insurance policies require that premiums be paid at designated intervals during the policy period or at the beginning of the policy period. Therefore, make it a habit to ensure your insurance payments are up-to-date and never lapse.
