You’ve decided to stop working for a while. Maybe you’re taking a few months off, returning to employment, or closing your business altogether.
Your business insurance policy is still running, though, and the next premium is due soon.
Can you just cancel it? Usually, yes. But it depends on the type of insurance you have, whether you’re likely to start trading again, and what work you’ve done in the past.
There are also some fairly significant differences between cancelling public liability insurance and cancelling professional indemnity cover.
If you’re no longer trading, you can usually cancel your business insurance, although you may have to pay a cancellation charge. However, some policies cover claims made during the insurance period rather than when the original work was carried out. Check this before cancelling, particularly if you have professional indemnity insurance.
Can you pause business insurance for a few months?
Most insurers don’t offer a straightforward pause facility. You can’t necessarily tell them you’re taking three months off and expect the policy to restart automatically when you return.
Some may allow you to reduce your cover or adjust the premium if your business activities have changed. Others will simply offer to cancel the policy.
Say you’re a self-employed web designer taking six months away from client work. You might no longer need certain types of cover while you’re not trading, but you could still face a complaint about a website you built last year.
A gardener who has stopped taking bookings faces rather different risks. With no work taking place and no employees or business premises to insure, there may be little reason to maintain some types of cover.
The insurer will consider the nature of your business, the risks involved, and the terms of your existing policy.
Can you get a refund if you’ve paid annually?
If you’ve paid for a year’s insurance upfront and cancel part-way through, you may be entitled to a refund for the unused period.
It isn’t guaranteed.
Some insurers deduct an administration fee, apply a minimum premium or use cancellation terms that mean you receive less than you expected.
For example, if you paid £300 for annual cover and stopped trading after six months, you shouldn’t automatically expect £150 back.
Another point to check if you pay monthly. Many business insurance policies are annual contracts, with the insurer collecting the premium in instalments.
Cancelling the direct debit doesn’t necessarily cancel the insurance contract or remove your obligation to pay outstanding amounts.
Ask your insurer for a written cancellation quote that includes any charges and the exact date your cover will end.
What happens if someone makes a claim after you’ve stopped trading?
This is where the type of insurance makes a real difference.
Suppose you’re a self-employed IT consultant. You finish a project in March, close your business in June and cancel your insurance.
In November, your former client alleges that a mistake in your work has caused a substantial financial loss.
Would your old policy cover the claim?
Not necessarily.
Professional indemnity insurance
Most professional indemnity policies operate on a claims-made basis. Broadly, this means the policy needs to be in force when the claim is made, subject to its other terms and notification requirements.
So even though you had insurance when you completed the work, a claim made after the policy expired might not be covered.
This is a particular concern for consultants, designers, accountants, IT professionals and others whose work could lead to a financial claim long after a project has finished.
Read more in our guide to professional indemnity insurance guide for sole traders.
Public liability insurance
Public liability cover generally works differently.
Many policies operate on an occurrence basis, meaning the date of the accident or damage is particularly relevant.
If a customer was injured while you were insured, the policy may still respond even if the claim arrives after you’ve stopped trading.
However, that doesn’t mean every old claim will be covered. You still need to check the policy wording, exclusions and notification conditions.
For more on this type of insurance, see our public liability insurance guide.
What is run-off insurance, and do you need it?
Run-off insurance covers certain claims arising from work completed before a business stopped trading.
It’s most commonly discussed in connection with professional indemnity cover.
Imagine an accountant retires after 20 years in practice. Two years later, a former client alleges that advice given before retirement caused them a loss.
Without suitable ongoing protection, the accountant could face the claim personally.
Run-off cover can protect against qualifying claims relating to earlier work, although terms and cover periods vary.
Some professional bodies require members to maintain this protection after leaving practice.
The Association of British Insurers advises businesses cancelling professional indemnity cover to consider run-off insurance, particularly as claims can emerge years after the original work.
There’s no universal requirement for every sole trader to buy run-off cover. A freelance consultant and a self-employed window cleaner have very different insurance needs.
For anyone providing professional advice or services, though, it’s worth raising this question before the existing policy ends.
What if you’ve been selling physical products?
Stopping trading doesn’t mean products you’ve already sold disappear.
A faulty electrical item might cause a fire months after you supplied it. A piece of equipment could cause an injury long after the original transaction.
Depending on your role in supplying the product, you could still face a claim.
This is particularly relevant if you manufacture goods, import products or sell items under your own brand.
Product liability policies often cover injury or property damage occurring during the insurance period, but the exact terms matter. You shouldn’t assume an old policy will cover every problem that develops after cancellation.
If you sold products through Etsy, Amazon or your own website, check what your insurer recommends when you stop selling. Read our insurance guide for online sellers.
What if you’re only taking a temporary break?
If you intend to restart the same business in a few months, cancelling may save money now but create complications later.
You might have to complete a fresh insurance application, accept a different premium or arrange additional cover for past work.
You could also lose continuity of protection, which matters with certain claims-made policies.
Ask your insurer whether you can reduce your cover while you’re inactive. If you have professional indemnity insurance, find out whether cancelling and subsequently restarting would leave any gap in cover for earlier work.
And if you’re taking a break because you’ve become ill or suffered an injury, don’t confuse business liability insurance with income protection insurance. They’re designed for different purposes.
What if you’re closing your business permanently?
If you’re certain you won’t trade again, there’s little sense in paying indefinitely for insurance you no longer need.
You may still need to deal with outstanding contracts, past work, products you’ve supplied or any employees you’re retaining during the closure.
If you trade through a limited company, leaving it registered but inactive (dormant) doesn’t automatically settle those questions. Read more in our guide to dormant limited companies.
If you’re winding up your business as a sole trader, read our guide to closing a business.
Before you cancel your policy, ask your insurer three things:
- Will I receive a refund, or do I owe any cancellation charges?
- Will my existing policy still respond to qualifying claims relating to past incidents or work?
- Do I need run-off cover or any other insurance after I stop trading?
Make sure you are provided the answers in writing and keep a copy of your old insurance documents