Professional Indemnity insurance* is designed for professionals who provide a specialist service or advice.
It helps a variety of occupations from accountants, consultants to even electricians protect their businesses from claims that result from an actual or alleged negligent act, error or omission that arises while providing their service.
But if the budget’s getting a bit too tight, you’ve stopped trading for a long period, or you’re closing up for good, you may be considering cancelling your Professional Indemnity cover.
However there are risks associated with cancelling your indemnity policy?
This short guide will go through some of the things that you should consider before cancelling your Professional Indemnity insurance*. It will point out some key indemnity insurance risks that you should be aware about to help you make an informed decision about your policy.
The difference between ‘claims-made’ and ‘occurrence-based’ policies
One of the major risks of cancelling your indemnity policy is that it could leave you exposed to a claim made against you due to a past mistake.
This is because Professional Indemnity operates on a ‘claims-made’ basis. What this means is that your policy must be active – and not cancelled – when a claim is made against you.
To illustrate, even if you’ve stopped running your professional service business for several years, a claim could still be made against you in the present day, and you could still be liable.
This is opposed to some other types of policies that are ‘occurrence-based’, which are designed to cover you for claims that occur during the time when you have the policy, regardless of when you file a claim.
For example, imagine you have an injury that resulted from a car accident years ago. If your ‘occurrence-based’ insurance was active when it happened, you would still be covered.
Recommended reading: ‘Claims-made’ vs ‘occurrence-based’ insurance
Additional risk of cancelling
Additionally, another risk you may encounter if you cancel your Professional Indemnity policy is that you may void certain contractual agreements.
Many contracts may require you to hold up to seven years of Professional Indemnity insurance after you complete the work. So, by cancelling your cover, you run the risk of breaching your agreements.
From the date your Professional Indemnity insurance is cancelled you will have no cover in place for any past, present, or future services or advice you give.
The importance of Run-Off insurance
Run-Off insurance is an important safeguard for Professional Indemnity policy holders, especially those that are planning to close.
Run-Off cover is designed to provide protection that extends beyond the last date of trading, ensuring you have active cover in the event of a claim.
While it’s common knowledge that many occupations require Professional Indemnity insurance in order to cover out their professional duties, certain periods of Run-Off cover may also be mandatory in some industries.
While it may be difficult to know exactly how long your Run-Off cover should be, it’s best to consider the risks and likelihood of the risk occurring to give you some indication. You will need to purchase your Run-Off cover before cancelling your Professional Indemnity insurance, and this will need to be done through the provider of your Professional Indemnity insurance.
If you are looking to cancel your Professional Indemnity cover to save on costs, consider shopping around for a more competitive quote instead. Visit BizCover to get quotes from multiple leading Australian insurers and experience insurance made easy.
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