What happens when you miss a Commercial Insurance Payment?

The Initial Grace Period

In most cases, your carrier will offer a five-day grace period after the payment’s due date. Note that this isn’t always the case, so you’ll need to know your carrier’s policy. If you pay the premium during this window, your policy will remain in effect. 

However, if you fail to pay, your carrier will begin the cancellation process. They will notify you and your insurance agent by sending you a notice of cancellation (NOC) or notice of intent to cancel (NOIC) by mail or email. 

You will have ten days from then to pay your bill. If after ten days the bill is still unpaid, your policy will be canceled. 

Once your policy is canceled, you’ll either need to have it reinstated, which we’ll discuss below, or purchase a new policy through a different carrier.

Paying after Cancellation: What to know about Lapses

What happens if you don’t pay your commercial insurance premium, and the carrier cancels the policy? 

This is called a lapse. 

You can usually regain your coverage with your original carrier, but you’ll need to complete what’s called a “no known loss letter”, or NKLL. Essentially, this document states that there were no work-related injuries or incidents during the lapse in coverage that may lead to a claim being filed. 

Note that most carriers aren’t thrilled about this, but many will work with you.

How much time do you have to reinstate your policy after a lapse and file an NKLL? 

There’s no one-size-fits-all answer. It’s like the grace period after missing a payment –– it varies by carrier. If you’ve experienced lapses in the past and bought coverage through a new carrier, it’s worth finding out what their policy is regarding lapses, so you know what to expect - ultimately it is up to the underwriter’s discretion.

Some carriers will require that your lapse span no more than 48 hours. Others are fine with lapses of up to two weeks. The longer the lapse, the greater the risk of the underwriter deciding not to reinstate the policy. 

The Implications of a Lapse

Business owners often assume that everything is fine if their carrier reinstates the policy after a lapse. However, carriers are hesitant to do this and maintain records of those lapses. It reflects negatively on your business even with an NKLL on file, because it highlights that you have a bad payment history.

Ruined Relationships

Another unfortunate outcome here is that you ruin your relationship with your carrier. There’s a lot of value in having a strong relationship with your carrier. 

For instance, you can ask for credits for different things but carriers will be less flexible and accommodating if there is a poor payment history. Even if your policy remains in place, you lose flexibility and alternative ways to save money.

Nonrenewal

Repeated late payments, policy cancellations, and having to file an NKLL show carriers that you’re not particularly worried about maintaining a positive relationship or upholding your legal requirements under the law as far as workers’ compensation coverage is concerned. 

Eventually, they won’t renew your policy, meaning that you’ll have to find another carrier. 

This process isn’t as easy as it could be in the first place, and it’s complicated by the fact that any prospective insurance carrier will ask why your previous policy was canceled. When they find out it was because of nonpayment and that you have a bad payment history, they’re unlikely to offer you a policy. 

The Dividend Challenge

If you have a dividend on your policy –– the rebate –– there’s a risk that you’ll lose it. Many carriers have bylaws that specifically allow for perhaps one or two notices of cancellation. Any more than this and you lose your dividend. 

Essentially, that means you’re throwing money down the drain simply because you failed to pay your commercial insurance premium on time.

The Short Rate Cancellation Penalty

Letting your policy lapse triggers some of the same penalties as canceling it before the expiration date. One of those is the short-rate cancellation policy. 

You’ll pay a fee that’s equal to a percentage of the total premium for the year, which is higher than the per-day amount. The specifics vary from carrier to carrier.

Potential Ramifications at the State Level

In addition to the issues we’ve discussed, like ruining your relationship with the carrier and making it hard or even impossible to get coverage with another carrier, lapses can also mean facing penalties from the state government. 

If you’re legally required to carry workers’ compensation and allow your coverage to lapse, you could be on the hook for:

• Financial penalties
• Revocation of licenses
• Lawsuits

Issues with Clients and Contracts

You may also find that you face challenges running your business, even if you don’t face penalties from the government. For instance, let’s say that you let your workers’ comp policy lapse, and your carrier canceled it.

Before you find a new policy, you find a potential new client with a project they want your help with. However, they will also want to verify that you have workers’ comp coverage before they select your bid because they rightfully don’t want to be responsible if your workers are hurt on the job. 

There are a couple of possible outcomes here, and they’re not all that positive. First, you could find yourself bidding on work and trying to find workers’ compensation coverage at the same time, hoping that you don’t land a new client before you sign a new policy. 

Second, your bid might be declined if you can’t show proof of workers’ compensation coverage right away, forcing you to keep looking for work and reducing your income. 

What if you need to Cancel?

Some businesses allow their workers’ compensation policies to lapse when they really just need to cancel the policy. If you need to cancel, do it the right way. Don’t let it lapse. 

How do you cancel it? 

First, submit a written request to your carrier. Note that you may need to use a specific form for this. Next, provide the date and the reason for cancellation, and then submit a loss policy release (LPR) form since you’re canceling before the policy’s expiration date. 

If the policy is auditable, for example, like a workers’ comp policy, then there would be a premium audit performed for the period that the policy was in force. Complying with this audit will leave you in the best possible position to get a new policy when the need arises.

Get the right Insurance from the start

An important part of obtaining (and keeping) workers’ compensation insurance is finding the right carrier and the right plan.

At Kickstand Insurance, you can get a quote in just seconds, compare your options, and get the coverage you need. Don’t let your policy lapse and then face the consequences. 

Get a workers’ comp policy that fits your needs and budget from the beginning.