Is It Possible To Cancel A Business Insurance Policy?

Canceling A Business Insurance Policy

Insurance can be quite challenging to navigate and requires significant continuous commitment by all the parties involved including the broker, customer, and the small business insurance company. Insurance companies are typically subject to complex regulations in every state they operate and often on the hook for far more money than they actually collect.

Is It Possible for a Business Insurance Policy to Be Canceled?

The simple answer is Yes. However, it is more complicated than that. The truth is that each entity in the insurance industry is simply trying to make a profit. The pursuit of profit will inevitably lead to canceled coverage for some customers. However, coverage is typically only canceled if the customer fails to hold up their end of the deal. The following is an in-depth discussion into how insurance cancellations work.

Non-Renewal Vs. Cancellation

It is important to note that non-renewal and cancellation are not one and the same thing. Non-renewal refers to a situation where an active policy isn’t renewed upon expiry of the term. It happens for a variety of reasons, but you will always receive a notice of non-renewal from the insurance company within 30 to 90 days of your policy expiring.

What Are the Common Reasons for Cancellation of a Business Insurance Policy?

1. Non-Payment

The first reason why a business insurance policy can be canceled is if you either make multiple late payments or fail to make the payments completely. Non-payment is understandable considering that the insurance company cannot offer its services for free.

If a company falls behind on its premium payments, other companies insured by the same insurance company will be affected since the risk is not sufficiently capitalized. Different states have different rules governing when insurance companies can cancel for late payments, but the average is usually 10 days.

If you want to protect yourself, it is important to ensure that you make your premium payments on time.

2. Inaccurate Application or Renewal Data

The second reason why a business insurance policy can be canceled is if incorrect information is presented during the application process. The misrepresentation can be either intentional or unintentional, but the fact is that it invalidates the calculated premium, which results in grounds for cancellation.

If the customer presents inaccurate information unintentionally, the insurance company may work with the customer to correct the incorrect information and subsequently recalculate the right premium, which allows the coverage to stay in force. However, this can be more challenging if the inaccurate information is noted after the claim occurs.

If the customer presents inaccurate information intentionally, the insurance company will most likely cancel the policy retroactive to the date when coverage first became active and will most likely notify the relevant authorities. Intentional misrepresentation is regarded as a form of fraud and a felony.

If you don’t want to find yourself in trouble with both the insurance company and the law, ensure that you provide accurate information.

3. Repeating Claims

The third and final most common reason why a business insurance policy can be canceled is when a business has too many claims of similar nature. Customers will obviously become understandably upset when this happens. Unfortunately, having a similar type of claim continuously indicates that the customer isn’t making the right attempts to ensure that the claim never occurs.

Repeated claims are likely to reduce the profits of the insurance company, which leads them to drop the customer. Like the rest, the cancellation due to repeating claims will vary from one state to the next and between 60 and 90 days of notice will be provided in advance so that the customer has sufficient time to find an alternative insurance provider.

Is It Possible to Cancel Your Business Insurance Policy Before Expiry of the Term?

Brokers are often asked this question, but the insurance industry always does a poor job of answering it. The short answer is yes. However, canceling a policy before the expiry of the term has a negative impact. It might prevent the canceled insurance company from ever insuring your business again and may affect the willingness of other companies to insure your business if you have a history of customer-initiated cancellations.

The Bottom Line

Insurance companies might cancel policies for various other reasons, but the 3 discussed here are the most common ones and are the easiest to prevent. If a company makes its premium payments on time, each time, and never knowingly provides inaccurate information during applications or renewals, and does its best to learn from its claim to ensure that they don’t repeat, it can expect to avoid facing any of the 3 frustrating cancellation situations.

While chances of getting your business insurance policy canceled are quite low, it is impossible to overstate the ability of a good broker to advocate on your behalf while leveraging their good standing with the insurance companies should you ever receive a notice of cancellation.