When should you cancel a business insurance policy?

Canceling a small business insurance policy is never a decision to be made lightly, especially in today’s risky business environment. It is important to ensure that your business and personal finances are not exposed to risk before you cancel an existing policy. Do your research beforehand and compare quotes from multiple carriers if you’re looking to replace your policy with something better, cheaper or more appropriate.

Reasons for considering canceling your insurance policy:

• You believe you are paying too much for insurance.
• Your business has changed, and you need different attention.
• You are moving out of state, and your current insurer does not offer policies in your new location.
• You are unhappy with the service your insurer provides.
• You want to combine separate policies into a less expensive bundled policy.

Consider the risks of canceling insurance

Once you decide to cancel your policy, consider four implications for your business:

Will you be exposing your business to lawsuits or other expensive claims? Canceling your insurance without having a new policy in place means you will have no safety net against lawsuits or other expensive losses.

Will you create a coverage gap by canceling a claims insurance policy? A claims policy can cover events that happened in the past, but you must have ongoing coverage, even if you change carriers. This type of policy is often found with errors and omissions, professional liability, and directors and officers insurance, which requires you to have active insurance to trigger coverage for an insurable event that occurred in the past. If you decide to cancel your policy, talk to your insurer about buying optional extended reporting period (ERP) or tail cover. This feature gives you the right to file for benefits even though you have canceled your claim policy.

Will you save money but weaken your insurance safety net? Saving money on insurance is important. But if it comes at the cost of leaving your company unprotected, it can be an unwise decision in the long run.

Will modifying your coverage meet your needs better than canceling your policy? In some cases, you may be able to adjust your coverage to meet your needs without canceling your policy. For example, if the nature of your business has changed or you have moved to a new location, you may be able to adjust your scope to reflect your new situation.

Still want to cancel? Send a written insurance cancellation letter

If you have a valid reason for canceling and it will not pose additional risk to your business, then it is time to file a written cancellation notice. But before you do, check your policy to see if your insurer has any cancellation requirements. For example, your insurer may need your letter to go to a certain department, or they may need a certain number of days’ notice before they can deactivate your cover.

Once you are clear about what is required, it is time to draft your insurance cancellation notice. Your letter should include:

• Date of notice
• Name and address of the insurance company
• Department name and appropriate contact person
• Name of the insured (found on the policy declarations page)
• Postal address of the insured
• The insurer’s telephone number
• Policy number
• Coverage period (on the statements page)

Next, draft the body of the letter. The body should include:

• The date you would like your policy to be cancelled
• Request for refund of unused premiums
• A statement that you no longer authorize the insurer to withdraw funds from your payment account for premiums (if applicable)
• Request for written confirmation that the insurer will process your request by the desired date