Run-Off Insurance

Is it necessary?

Professional Indemnity Insurance covers business professionals against claims of negligence due to an alleged omission, act or breach of professional duty. This could include providing inaccurate information or failing to perform a service adequately, with the result that their client suffers a loss.

And while most professionals hold Professional Indemnity Insurance over the lifetime of their business, because claims can be made retrospectively even after they have retired or their business has closed, Professional Indemnity Insurance including run-off cover remains a necessary cost they must continue to bear.

Run-off insurance is underwritten on a ‘claims made’ basis (only covers claims made while the policy is in force, regardless of when the act took place), meaning even though the business is no longer in operation, it must continue to hold run-off cover in case a claim is lodged at some time in the future.

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What will it cost?

Run-off cover will initially cost roughly the same as normal Professional Indemnity Insurance in the first year after the business closes and the run-off period begins. After that, the longer the business has been closed, the less run-off cover will cost, although it will take several years to reduce significantly, given that from the insurer’s perspective, there is still a high chance of a claim during this time.

Six years is considered to be the minimum time run-off cover should be maintained for, as this is the time limit for lodging a claim under both breach of contract and tort law, although circumstances will differ with each business.

Am I eligible?

To be eligible to purchase run-off cover, the previous business must be no longer operating. Many insurers will also only provide run-off cover to existing clients who have held Professional Indemnity Insurance with them in the past.

Can sole traders get cover?

Sole traders can purchase run-off cover and need to do so more than most. This is because if one partner in a normal business retires, the Professional Indemnity Insurance is usually maintained by the remaining partner to protect the business. But being an only practitioner, a sole trader closing their business would need to continue protecting themselves, even after retiring.

Talk to a broker about run-off insurance

Frequently asked questions

• What does run off cover mean?

  Run off cover is like a safety net for your business, even after you've closed up shop. It's a type of insurance that protects you from claims that might pop up later, relating to work you did in the past. Kind of like having a mate who's got your back, even when you've moved on to new things.

• Why do I need run off insurance?

  Think of it this way: sometimes, issues with a job you did might not show up right away. It could be weeks, months, or even years later. If someone decides to make a claim against you for past work, and you don't have run off cover, you'll be left to handle it on your own. That could mean legal fees and other costs coming out of your own pocket. Not ideal, right? Run off cover helps you avoid that stress and expense.

Written by

Alex Reid

Expert

Alex Reid is Finder’s business insurance cadet. He has a Master of Marketing from the University of Technology Sydney, with a background in business and sales. When not writing about business insurance for Finder he's a keen scuba diver, recently completed his 200th hour underwater and his PADI Divemaster certification. Before working at Finder he lived in Hangzhou China, where he studied Mandarin and Chinese culture. See full bio