Cancelling Business Insurance Policies - Watch Out For the Minimum Charges

Business and commercial insurance policies are something that you purchase in advance, in the hope that you may never need to actually use it.

You buy a policy that runs for one full calendar year. Usually, policies run from midnight to midnight. So, you buy a policy that starts on the 3rd March 2010, it will expire at midnight on the 2nd March 2011.

For one reason or another, you may choose to cancel your business insurance policy mid way through the insurance year. You may decide to cease trading, you may merge with another company or you may move premises. For all of these reasons, it is perfectly valid that you decide that your current policy is no longer required and you wish to cancel it.

An policy is essentially a risk transfer mechanism. You are saying to an insurance company that, in return for you paying them and annual premium, that they will take some of your business risks, i.e. the risk of fire, theft or flood or a employers, products or public liability.

You have different options when paying for your policy. Usually it is one of two. You either pay the premium in full, in advance or you pay it in monthly installments.

Either way, the insurers would expect within the 12 month period to receive the full annual premium from you. Likewise, you would expect that if you cancel the insurance policy at any point in that twelve months they would return any unexpired portion to you. Ordinarily you would want this on a pro-rata basis. If you pay for twelve months and then cancel after 6, you would expect to get 6 months back.

But, unfortunately, this is not always the case and you need to aware of this when taking out your policy. You can understand that if you need to make a claim on the policy in that year, then you should be liable to pay the full annual premium. This is written into the terms and conditions of each and every policy. But, come policies do have a condition that whenever you cancel the cover, whether you have claimed or not, you have to pay the full whack.

These policies are called minimum and deposit and you should avoid them like the plagues. They normally apply only to combined liability or professional indemnity insurance but, some insurers, have them applied to all covers. They are on the radar of the FSA as they feel, quite rightly, that they are not part of their "treating customers fairly" philosophy.

If however it is made abundantly clear to you at the outset, i.e. that you are getting such a good deal on the premium because it is minimum and deposit and you accept it, then this is ok. However, in reality we are finding that minimum and deposit policies are being sold without the purchasing customer being made fully aware.

If you are looking around for a quote, then you need to make sure that it is not on this basis. Of course, you are not going to take out a policy with the intention of cancelling, but you never know what is around the corner.