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So You Want to Retire

So You Want to Retire

After years of running a successful business, through good times and bad, you have finally reached the ultimate reward for all your hard work – retirement.  You’ve got a retirement account and investments to fund your golden years, money that you’ve worked hard to accumulate.

Whether you own your own business or are a partner in one, retirement is never as simple as turning off the lights and locking the door behind you when you leave.  Some work product and business contracts may still linger even after you have left the building.

Don’t Leave Your Insurance Broker Out of the Loop

How can you protect your retirement after you have shut your doors?  Calling your insurance broker is the best way to find out.  The insurance policies you have invested in over the years may offer some protection even after you retire, but you need to know which ones and how they can do just that.

Once you have set a retirement date, make sure to call your insurance broker 60-90 days ahead of time to discuss your business insurance policies.  Retiring will not absolve you of all legal responsibilities for what you did or sold while you were in business, but your insurance coverage may offer some protection beyond retirement.  It is important to discuss with your broker how you are and are not protected, and what you can do about.

Full Occurrence Liability Insurance May Not Be So Full After All

Commercial general liability policies sold to businesses today are usually called “full occurrence” which means that no matter when a claim is made on the policy, the policy in effect at the time of the cause of the loss is the policy that responds to the claim.  That can bring peace of mind well into retirement.

But is your “full occurrence” liability policy actually that?  Some liability policies may come with something called a “sunset clause” (also known as a limited reporting period), which is a clause that states that claims covered are limited to those filed during the policy period and for a short time after the expiration date of the policy, limiting coverage to a defined period of time.  These are rare, but can be included in some contractor policies, though any business may be subject to it.

Do you have a sunset clause?  The best way to find out is by calling your broker.  If you do have a sunset clause, there may be remedies to help extend coverage into your retirement.

The other concern may be whether or not your insurance carrier is still in business when you retire.  If you have selected insurance carriers with an AM Best rating of A or higher, chances are they are financially stable enough to continue on well into the future.  If not, there may be some coverage offered through state insurance guaranty funds like the California Insurance Guarantee Association (CIGA) , though payouts are usually limited to $500,000 per claim or your policy limit per claim, whichever is lower.

Claims Made – You Need A Tail

Some liability policies can only be purchased as “Claims Made”, meaning that claims must be filed during the policy period, or within 60 days of policy expiration to be covered.  Professional Liability, Errors and Omissions, Directors and Officers, EPLI and Cyber Liability and even some Commercial General Liability policies are examples of claims made policies.

Extending a claims made policy into your retirement is extremely important.  Some claimants may wait until the statute of limitations is nearly up on a claim before they file a lawsuit against you, which could be many years depending on state law.  The best way to protect yourself is by purchasing an Extended Reporting Period (ERP) policy or “Tail Coverage”.

Tail coverage extends the reporting period of the policy from the usual 60 days to a period of 1, 3, or 5 (or more) years beyond the expiration date of the policy.  Your broker will quote each ERP upon retirement, and it is recommended that you purchase the longest tail coverage you can reasonably afford to extend into your retirement.  You never know when a claim may pop up.  If you have any or all of the policies listed above, an ERP is required for each separate policy.

Property Insurance Should Also Be Reviewed

If you own property or tools and equipment, these policies should also be reviewed.  The rule of thumb should be to keep these policies in place until the property in question is sold or returned to the lessor.

Real property coverage, which includes both land and buildings, should be kept in place until the property is sold.  However, you should have a conversation with your broker about the possible property insurance coverage changes that may occur if your property is vacant for any length of time while awaiting a sale.  Most policies include a vacant property provision that limits claims to only specified covered causes of loss after a certain period of time up until the policy expiration.

Before you leave your firm or close your business to retire, schedule some time to review your business insurance policies with your broker.  Failure to do so could have a negative effect on your retirement future.  Your Hayes Broker is waiting for your call.

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