Why do I need insurance after I close my business?

You’ve poured your life into your business, but it’s finally time to hang up your hat and retire. You find a great buyer and sell the business, or maybe you just close up shop completely. Time for some traveling, some fishing … and no more worries about commercial insurance. Unfortunately, this may not be the case.

If you fail to purchase discontinued operationscoverage, your personal assets may be exposed for losses that occur after you canceled your insurance policy.
Most general liability insurance policies cover incidents on an occurrence basis, which typically means losses must occur during the policy period to be covered. The occurrence date is generally the day the injury or damage actually happened, not when the work was done or the product was made.

EXAMPLES

For example, a contractor builds a deck in 2014 and then sells his business and cancels his company’s insurance policy later that year. In 2015, the deck collapses. Since the injury or damage occurred in 2015 (after the policy canceled), the occurrence-based general liability coverage is no longer in place.

Similarly, consider a manufacturing operation. A product is manufactured in 2012. In 2014, the owner retires, closes up shop and cancels her insurance. When the product causes injury in 2015, no coverage would be in place, and the business owner’s personal assets may be at stake if she is held liable for the loss.

A discontinued operations policy provides products/completed operations liability coverage after a business is closed. It also can provide specific coverages for just one portion of a business that has closed.

STATUTE OF LIMITATION

Many states have a statute of limitation or statute of repose that sets an absolute time limit for bringing suit. Companies that go out of business should consult their legal counsel as to whether, and for how long, they need to purchase a discontinued operations policy. See your local independent insurance agent for advice on discontinued operations coverage and other insurance for your business.

Once coverage is in place, get ready to relax and enjoy your retirement!