What is the Financial Risks of Canceling Business Insurance?

If you terminate any sort of coverage before obtaining a replacement policy, you expose your firm to dangers that are not covered. Some policies provide a grace period or coverage extension if you are late renewing a policy. However, this may not be the case if you cancel your coverage.

It may seem reasonable to cancel general liability coverage if your firm has never had a slip-and-fall incident, but such an accident could occur at any time. This is especially important if you have frequent customers on-site.

If you cancel your policy to reduce your insurance prices, you may end up with higher expensive premiums. Starting and stopping coverage can be a red signal for insurance companies, making it more likely that you will face a cost hike if you decide to re-apply for insurance after your firm has closed.

During the COVID-19 pandemic, for instance, most small business insurance policies were unlikely to cover temporary business closures or income loss due to a virus, bacteria, or other microorganisms (unless the owner had previously purchased a communicable disease rider).

Even though many restaurants and other "non-essential" businesses continued to operate in a limited capacity and had fewer interactions with the public, it was more cost-effective in the long run to maintain coverage throughout rather than discontinue coverage and face premium increases from their insurance provider for years.

In virtually all cases, you should acquire a new policy before canceling your present coverage.