What Happens if My Business Insurance Lapses?

Running a small business comes with a never-ending to-do list, and sometimes, things slip through the cracks. Your business insurance is one thing you don’t want to let slide, though.

If your policy lapses - whether through an oversight or a conscious decision - it can expose your company to risks. Let’s break down what happens when your cover runs out and what you can do to fix it.

What is a Lapsed Insurance Policy?

A ‘lapsed’ insurance policy has expired because the renewal fee wasn’t paid on time. This could be due to an admin error, a cash shortage or a decision to let the policy end.

Regardless of the reason, once your insurance lapses, your business is no longer protected.

The Risks of Operating Without Insurance

1. Legal Consequences

Depending on your business type, some insurance policies might be legally required. For example, Employers’ Liability Insurance is mandatory in the UK if you have employees. Operating without it can result in hefty fines of up to £2,500 per day.

Professional Indemnity Insurance might be a contractual requirement if your company provides professional services. A lapse in cover could put you in breach of contract with your clients.

2. Liability Exposure

Without insurance, you’re personally responsible for any claims made against your business. You'll be footing the bill whether it’s property damage, an injured visitor or a data breach. Even a single claim could be financially crippling.

3. Loss of Contracts

Many clients, landlords and suppliers will ask for proof of insurance before working with you. A lapse could mean losing out on contracts or being unable to renew leases and agreements.

4. Reputational Damage

If word gets out that your business is uninsured, customers may lose confidence in you. They want to know they’re protected if anything goes wrong, and a lapsed policy might encourage them to take their business elsewhere.

What To Do if Your Insurance Has Lapsed

1. Contact Your Insurer

Many insurers have a grace period, which means you might still be able to renew without losing coverage. If it has been too long, you may need to take out a new policy instead.

2. Assess Gaps in Coverage

A lapse means there’s a period when your business wasn’t covered. If something happens during that time, your insurer won’t cover it. Make sure you understand any exposure you might have.

3. Consider Your Options

If your policy lapsed due to financial difficulties, discuss flexible payment plans with your insurer. If it only lapsed because you forgot, setting up an automatic renewal or calendar reminder can prevent it from happening again.

4. Take Out a Policy

If your previous insurer won’t reinstate your policy, shop around for a new one as soon as possible. Compare quotes from trusted providers and ensure you get the right level of coverage.

How to Prevent Future Lapses

• Set up automatic payments: This ensures you never miss a renewal deadline.

• Review your coverage annually: Check your policy each year to ensure it meets your needs and that you aren’t overpaying.

• Keep track of renewal dates: Put reminders in your calendar at least a month before your policy expires.

• Use a comparison service: If managing insurance isn’t your forte, a business comparison service can do the legwork for you.

Policy Summary

A lapsed insurance policy isn’t the end of the world, but it can be costly if left unaddressed. The best approach is to act quickly, get covered again and put systems in place to prevent it from happening in the future.

If in doubt, speak to an insurance professional who can help you secure the proper protection for your business.

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