What insurance gaps should I check when buying a business?

Insurance gets treated as an administrative item for closing day and it carries two substantive risks: being uninsured for a period, and inheriting liability for a period you can no longer insure.

Policies do not come with the business

A commercial policy names the insured and is generally not assignable without the insurer’s consent, which is rarely given. In an asset purchase the buyer arranges new coverage effective at the moment of closing. In a share purchase the corporation keeps its policies, but the insurer will usually need to be told about the change in control — and may reprice or decline.

Review the seller’s policy for what it did not cover

Ask for the current policies and the loss history, then read what is excluded rather than what is included. Owners under cost pressure reduce coverage, raise deductibles and let endorsements lapse. A business that has been operating with inadequate limits has been running a risk that was simply never realised, and it becomes your risk at closing.

Claims-made policies are the real trap

Professional liability and similar coverage is often written on a claims-made basis, meaning it responds to claims brought while the policy is in force rather than to work done while it was. When the seller’s policy ends, a claim arriving later about earlier work may fall outside both policies. Run-off or extended reporting coverage is the answer, and who pays for it belongs in the agreement.

Check what the lease and your lender require

Commercial leases usually specify minimum coverage, additional insured parties and certificate delivery. Lenders impose their own requirements, often including key person insurance. Both need to be in place at closing, and both take longer to arrange than buyers expect — start the conversation with a broker weeks before completion.