When a salon owner is prioritizing expenses for payment, insurance is often at the bottom of the list. Without a storefront, you don’t have a business at all, so you pay the rent. You can’t operate your tanning beds if you don’t have electricity, so you pay that bill. No water means no spray booths or laundry. Because operating your business without insurance coverage doesn’t immediately affect the day-to-day operations, it is sometimes deemed not vital and allowed to lapse. But let’s look at the potential consequences of not keeping insurance in force at all times.
You probably have contractual obligations to maintain insurance and provide protection for other parties. Most leases specify that insurance will be carried and name the landlord as an Additional Insured. If you allow your policy to be cancelled, the landlord may be notified. This then places you in a non-compliance situation and could cause problems with your landlord. They may even have the right to lock you out of your suite.
By not looking at insurance as a necessary expenditure, you may be making yourself difficult to insure.
Likewise, if you have leased equipment or loans that list your business assets as collateral, insuring those assets is normally a requirement. Again, if the policy is cancelled, the note holders can be notified. Many will then force place coverage and add the cost to your loan/lease payment. This might not seem so bad, but in some instances, this insurance only protects the note holder’s interest in the property, not yours. And you have no control over the cost of said insurance. Therefore, you are getting limited coverage at a hefty premium.
The most important reason to maintain insurance on a continuous basis is to protect you, the business owner. Property insurance and most General Liability coverage is written on an Occurrence basis. That means the policy must have been in force at the time of the incident in order for coverage to apply. Even if you only have a small gap in coverage, anything that happens in that period would not be covered, even once you start a new policy. It only takes one event to wipe out everything you have worked so hard to build.
If your lapsed policy was written on a Claims-Made basis (instead of an Occurrence basis), as some Professional Liability policies are, not only must the policy have been in force at the time of the incident, but it also must be in force (continuously) at the time the claim is reported. A new policy written after a lapse in coverage will not respond to something that occurred during the prior policy’s term, even if it was prior to the policy cancelling or expiring. Prior Acts Coverage is sometimes available to prevent this “gap” from happening, but the carrier might not be willing to provide it. If the coverage is available, it comes at an additional cost. In essence, you will have lost all the protection you had been paying for, especially since many liability claims are not reported (or known to the business owner) when they occur. Insurance companies also look at the reason your policy cancelled or expired to determine their ability to write a new policy for you. By not looking at insurance as a necessary expense, you may be making yourself difficult to insure.
There are many reasons to insure your business. Peace of mind is at the top of the list. Talk to your specialized insurance agent and get the correct coverage at the appropriate price. And then, keep it in force! ■
