This article are provided for information purposes only, and are not intended as legal advice.

Do you operate your business without insurance?

October 22nd, 2009

You just started your business or your business has been hurt by the economy.  Cash flow is slow but you believe that you are invincible, do you stop paying your insurance premiums?  Before I answer this, let’s discuss the type of insurance and the legal entity which owns the business.


Are you incorporated or unincorporated?  If you are unincorporated, you are personally liable if you are sued and risk all your personal assets in a potential settlement if you are found liable.  Do you have any personal assets or are all the assets owned by a family member or spouse?  If you are incorporated, there is limited liability for most items.  In Canada, if you are a professional corporation, you may still be liable for professional errors even though you are incorporated.  If you stop paying your insurance, if you are a professional corporation, then you may be in violation of your professional reporting body. 


If you are an old company where the name of the business if very important, if you are sued and have no insurance, it is possible that you may have to declare bankruptcy?  Is that an option?  If you are sued and lose, will the bank call your bank loan and draw down on their security?  Will that devastate the business?


In addition to business insurance, you may also have disability and life insurance payments.  If you have been paying insurance premiums on your life insurance policy since you were say 25 and now you are in poor health at age 60, if you stop paying the premiums, then you may not qualify for a new insurance policy, if you start a new insurance policy, the premiums will be significantly more than if you were starting the policy as a young person. 


If you have a disability insurance, this also is dependent on your health.  If you took out the policy while you were in good health, then if you stop paying will you qualify again or will you now be uninsurable?  If your were to stop working in the future and have no disability insurance and not life insurance, how will you survive?  If your business can’t afford the premiums any more, is the business worth a lot of money or do you need to sell the business, do you need to find a partner to inject more capital into the company?  In these situations, you have to look at if the company is still viable but is in a cash crunch or has the business deteriorated so badly that is it not worth saving. 


Please note that if you have an insurance policy owned by your company and you want to transfer it to your own personal name, there may be some tax implications on the transfer of ownership.  You should contact your insurance agent to explain the tax ramifications of a change in owner of the policy.

Filed under: Business strategies — Gary Landa @ 8:55 am

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