What Happens When I Want to Retire?

August 2008 

As a professional you accumulate liabilities throughout your working career. 

If you are working for a large firm this should be of less concern to you as your employer should continue to insure these. However when working for yourself either as a sole practitioner, small company or in partnership the liabilities you create will continue with you into retirement.

Due to the “claims made” nature of Professional Indemnity (PI) insurance you must have a current policy in your hand at the time a claim is made against you.  Otherwise you have no cover.  You need to continue to purchase PI insurance when retired to keep your liabilities protected.  This is done through the purchase of a “Run Off” cover which will insure your past liabilities. It will not insure you for any new liabilities you may create after you retire.

Such Run Off cover is less expensive than purchasing active PI insurance and there are strategies we recommend to clients to minimise this cost further. 

Remember, when you are working for yourself, you need to consider putting some money aside every year to pay for the Run Off cover when you retire. See our Run Off Calculator to give you some idea of how much to put aside each year.

The issue becomes more complex Run Off Calculator when you decide to “sell” your practice as either part of an internal succession plan or to another unrelated party.  

The best way to “sell” is to include in the sale your liabilities.  The new owner will need to continue to insure against those liabilities.  This is less difficult than you purchasing a Run Off cover as the new owner will have an ongoing need to continue to purchase PI insurance for their business practices.  However, many business sales do not include the liabilities you created and you need to consider the purchase of Run Off cover should this be the case.

Another issue to consider is when acting as a private accredited certifier or building surveyor depending upon your State or Territory.  These statutory functions are fulfilled by you as a natural person and therefore you are personally liable for such work.  Your exposure is reduced by the defence provided by your business structure, however when you wish to wind the business up you retain these liabilities personally.  Again it is important that you consider purchasing Run Off cover to protect your hard earned retirement assets from claims.

Even when you are working in such a capacity for a large employer you will need to consider how your employer proposes to continue to insure your personal liabilities once you have retired. You also need to consider what happens should that large company cease to exist?

Before you retire seek our advice to see how best the protection of your liabilities can be arranged and what strategies you can employ to minimise your insurance expense.



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