A common practice for salon owners is to prioritize expenses, and insurance is often at the bottom of the list, if it makes the list at all. Paying rent is a no-brainer – without a storefront, you do not have a business at all, so you pay the rent. You cannot operate your tanning beds without electricity, so the electric bill gets paid. Not having water means spray-booths cannot operate and laundry cannot be done, so the water bill is paid. Because operating your business without insurance does not immediately affect day-to-day operations, it is sometimes deemed not vital, and salon owners allow it to lapse. But, let’s look at the potential consequences of not keeping insurance in force at all times.
Most likely, you have contractual obligations to maintain insurance for your salon and provide protection for other parties. Most leases specify that insurance will be carried and name the landlord as an Additional Insured on your policy. If you allow your policy to be canceled, the landlord may be notified, which then places you in a situation where you are no longer compliant and could cause problems with your landlord. They may even have the right to lock you out of your suite!
Like leases with landlords, if you have leased equipment or loans that list your business assets as collateral, insuring these assets is a very common requirement. Again, if the policy is canceled or a certificate expires, the note-holders will most likely be notified and oftentimes, many will then force place coverage and add the cost to your loan/lease payment. This might not seem too bad; but in some instances, this insurance only protects the note-holder’s interest in the property and provides no coverage for yours, also removing your control over the cost of said insurance. Not only are you getting limited coverage, it also comes with a hefty premium.
The most important reason to maintain insurance on a continuous basis it to protect you, the business owner, and your business. Property insurance and most General Liability coverage is written on an occurrence basis. That means that the policy must be in force at the time of the incident in order for coverage to apply. Even if you only have a small gap in coverage, anything that happens during that period of lapse would not be covered, even once starting a new policy. It only takes one event to wipe out everything you have worked so hard to build.
If your lapsed policy was written on a Claims-Made basis (instead of an Occurrence basis), as some Professional Liability policies are, not only must the policy have been in force at the time of the incident, but it also must be in force (continuously) at the time the claim is reported. New policies written after a lapse in coverage will not respond to something that occurred during the prior policy’s term, even if it was prior to the policy canceling or expiring. Prior Acts Coverage is sometimes available to prevent this “gap” in coverage from happening, but the carrier might not be willing to provide it. If the coverage is available, it comes at an additional cost. In essence, you will have lost all the protection you had been paying for, especially since many liability claims are not reported (or known to the business owner) when they occur.
It is common for insurance companies to look at the reason your policy canceled or expired to determine their ability to write a new policy for you. As a business owner, by not looking at insurance as a necessary expense, you may be making yourself difficult to insure.
The list of reasons why it is important to insure your business is long – peace of mind is at the top of the list. Talk to your specialized insurance agent and get the correct coverage for your business, at an appropriate price. Then, keep it in force!
The list of reasons why it is important to insure your business is long – peace of mind is at the top of the list.