So that’s it. You’ve decided to call it a day. It’s time to hang up the briefcase, close the laptop and run off to the beach/pub/golf course (delete as appropriate).
So is that what run-off cover is, then? Insurance for your new life? The one you're going to enjoy every minute of once you've closed your business?
Well, yes and no. It won't cover you if you come a cropper doing your best Baywatch impression, or smash a golf ball through somebody's patio windows. But it will protect you if someone makes a claim against you for work you did in the past, before you shut up shop.
It's a common assumption that once you shut up shop you can cancel your business insurance. And to a certain extent, that's true.
Public liability insurance, employers’ liability insurance, and office insurance can be ditched. But you might want to keep your professional indemnity insurance ticking over by adding something called run-off cover.
There may be trouble ahead
If you’ve had professional indemnity insurance (PI) for some time, you’re probably aware it’s a ‘claims made’ policy.
In simple terms, that means negligence claims against you are only covered if your policy is running at two points: when you do the work and when the claim is reported.
If you cancel your policy, and a client subsequently claims against you, the claim isn’t covered – even if it relates to work you did when the policy was up and running.
The thing is, it can take months or even years for mistakes and problems to come to light. And if it turns out it's your work that's at fault, you’ll have to pay to make things good - whether you’re still in business, or not.
That makes it important to keep your cover going after completing a contract. Or after you’ve ceased trading. And that's where run-off cover comes in
Run-off cover rundown
Run-off cover is specially designed to protect businesses that are no longer trading. It’s like a bolt-on section of PI cover that starts when you stop.
But, because it’s not a full-blown professional indemnity insurance policy (it doesn't cover any new work, for example) it costs less. The logic is that the likelihood of a claim against you reduces as time passes by, so your premium also reduces in synch with the shrinking risk.
And although run-off cover only provides useful protection against claims from work you’ve already done, it helps avoid the sort of hassle and expense you can do without when you’re supposed to be taking it easy.
How much run-off cover is enough?
The only problem you might have is deciding how long you need run-off cover for. Generally, and somewhat unhelpfully, there’s no minimum or maximum length of time you have to have it. (Chartered accountants, architects and members of the RICS are the exceptions here.)
It depends on what your business did and how likely you think it is that there could be a claim. The limitations period is six years from the date of the alleged incident. Whether that’s enough or too much for you is your call.
If you’re thinking of putting your feet up and you’d like some advice on how best to stay safe, feel free to give us a call on 0345 222 5391. Or you can drop us an email at email@example.com
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