You’ve worked hard to build a thriving business, but more and more you are thinking about the next chapter in your life - retirement. As you enter this phase, the last thing you want to be concerned about is losing the assets you have built and an event that could negatively impact your quality of life. This is where run-off insurance comes into play.
Professional Indemnity insurance is ‘Claims Made’ insurance where an active policy is required at both the time your services were provided and when an allegation (claim) is made against you.
Invariably, claims under a Professional Indemnity policy relate to services provided in past years. Essentially, if you do not have an active policy in place when a claim is made against you, you are not covered for your previous work. This is where run-off insurance comes into play.
In the current market, run-off insurance is an annually renewable policy designed to provide cover for previous work undertaken once your business ceases. This means there will be additional costs at a time when the business is no longer receiving revenue. However, some planning now can relieve this financial pressure.
The next question is always “What will this cost me?”
The first year of run-off insurance is applied as the same premium in the expiring policy. For each subsequent renewal, the premium reduces by 10%, subject to an insurer’s minimum premium. As a rough guide, to plan for 7 years of run-off policies would total 4.9 times your annual premium.
That is, run-off period as a percentage of expiring premium:
We are seeing an increasing number of businesses include a levy in their professional fees in the years prior to the business ceasing.This is held aside to ensure sufficient funds are available to cover the run-off premiums when they are required.
Some planning now to cover future run-off expenses can help ensure you are looked after into retirement, enabling you to swing that golf club with a clear mind. To find out more about run-off cover and how it can work for you, please reach out at any time.
Senior Consultant
