If you’ve stopped trading, even for a short period, you may be wondering what to do with your business insurance.
If you’re no longer working, paying clients or issuing invoices, it can seem like an unnecessary expense. But before you cancel your policy, it’s worth checking exactly what you’re giving up.
For some businesses, cancelling cover makes perfect sense. In other cases, you may still want protection in case a claim relates to work you’ve already completed.
If you’ve stopped trading, you may be able to cancel your business insurance and avoid future premiums. Before doing so, check whether you still need cover for previous work, as some businesses benefit from keeping their policy or arranging run-off cover.
Can you pause a business insurance policy?
Usually not.
Most business insurance policies can’t simply be paused for a few months and restarted later. They’re generally either active or cancelled.
If you’re paying monthly, you can often cancel the policy and arrange a new one if you start trading again. However, don’t assume every insurer works in exactly the same way. Check the policy terms before making a decision.
What if you’ve already paid for the year?
If you’ve paid your premium annually, your insurer may allow you to cancel before renewal and receive part of the premium back.
Whether you receive a refund depends on the policy conditions. Some insurers calculate refunds on a pro-rata basis, while others deduct administration charges or have minimum premium rules.
If you’re thinking about closing your business altogether, it’s worth contacting your insurer before cancelling. A quick phone call could save you money.
Could someone still make a claim?
Possibly.
Imagine you completed a piece of work several months ago. Everything seemed fine at the time, but a customer later claims your work caused them a financial loss or their property was damaged.
Whether your insurance would respond depends on the type of policy you have and its terms and conditions. Different types of business insurance work in different ways, so it’s important not to assume you’re covered once a policy has ended.
If there’s any possibility of a future claim, speak to your insurer before cancelling your cover.
What is run-off cover?
Run-off cover provides protection against certain claims arising from work you carried out before you stopped trading.
It’s most commonly associated with professional indemnity insurance, where claims sometimes arise months or even years after advice or professional services were provided.
Not every sole trader needs run-off cover, but it’s worth asking your insurer whether it’s appropriate for your business before cancelling your policy.
What if you sold products?
Claims aren’t limited to service businesses.
If you manufactured, imported or sold products, it’s possible for problems to come to light after the sale. Depending on the circumstances, you could still face a claim even though you’ve stopped trading.
If this applies to your business, check with your insurer what protection remains in place once your policy ends.
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When does cancelling make sense?
If you’ve permanently stopped trading and don’t expect to start again, cancelling your insurance may be the right decision.
If you’re simply taking a break, compare the cost of keeping the policy with the cost of arranging new cover later. In some cases, maintaining continuous cover may be the better option.
Don’t just cancel your direct debit or stop making payments. Contact your insurer so the policy is cancelled properly and you understand exactly when your cover ends.
If you’re unsure, ask your insurer to explain what will and won’t be covered after cancellation. It’s much easier to clarify things beforehand than discover you no longer have the protection you expected.