If a business downturn causes you to lay off employees, you might want to cancel your workers’ compensation insurance. Workers’ comp coverage is required when you hire someone. Without employees, it’s overhead you would like to cut.
But canceling your insurance isn’t always the best move. Here’s why.
Three Reasons Not to Cancel Workers’ Comp Too Quickly
- It’s hard to scale up again. Do you expect the downturn to be temporary? You will need to re-apply for workers’ comp when you hire employees again. This costs time, effort and money.
- You may lose valuable dividends. MEMIC, Maine’s largest workers’ comp insurer, has paid dividends several years in a row. If you cancel, your business has to wait 3 years to start earning dividends again.
- You may lose loss-free discounts. By canceling your policy, you lose the benefit of any loss-free discounts you’ve earned. When you re-start your policy, it takes time to accumulate those discounts again.
Cost-Cutting Alternatives to Canceling Your Workers’ Compensation Policy
- Reduce estimated payroll. Workers’ comp premiums are based upon payroll amounts. Layoffs mean lower payrolls, so it’s fine to reduce estimates. This may create a refund without actually canceling your policy.
- Change payment plans. Most workers’ comp insurers offer installment plans. Spreading payments may allow you to better match cash flow without losing benefits.
Updating your Maine workers’ comp policy may be smarter than canceling it altogether. Closing your business, or have no plans to hire for more than a year? Then it’s proper to cancel your workers’ comp insurance.
Maine Workers’ Compensation Insurance Questions?
For answers to your Maine workers’ compensation questions, contact a Noyes Hall & Allen Insurance agent in South Portland at 207-799-5541. We’re independent and committed to you.