A workers compensation insurance policy is different in many ways from other types of insurance policies when it comes to the effect of not paying your bill. They’re not like a personal auto policy or homeowners policy where if you don’t pay the bill the insurance company sends you a pending cancellation notice, gives you a chance to pay the late bill and if you don’t it the coverage cancels and that’s all there is to that. No, a workers comp insurance policy is a bit different because it’s an auditable policy! Premium audit bills will not just go away!
Of course an insurance company will cancel your policy if you stop making your payments. The day they can cancel your policy, after you’ve stopped making payments, is different in different states. The act of cancellation is governed by individual state rules and statutes. For example in the state of Missouri the insurance company must give you 30 days notice of cancellation for non-payment of a workers compensation policy.
But here’s what really happens when you don’t pay your work comp premium. The insurance company will send you a pending notice of cancellation giving you the alotted time to get your payment into the company. If they do not receive your payment, your policy will cancel on the date and time of which the insurance company notified you.
But it doesn’t end there! You see, a workers compensation policy is an auditable insurance policy. (I’ve written a great deal about this in the past.) This simply means that when you start the policy the premium is based on a projection of what the actual premium base, payroll or remuneration, will be at the end of the policy. So if your policy was set up using a payroll (remuneration) of $100,000 at the beginning and then at the end of the policy the actual payroll (remuneration) was $150,000 the policy will be recalculated and you will be sent a premium audit bill for the additional premium the extra $50,000 in payroll generated. It does work both ways! If your actual payroll was less, you’d be due a return in premium from the insurance company.
So when a workers compensation policy is cancelled for non-payment, the insurance company will still perform a premium audit. In this situation it’s usually called a cancellation audit. If you decide you don’t want to cooperate with the insurance company and refuse to allow the audit to be completed the insurance company will still generate a premium audit bill using the rules available to them to surcharge or otherwise penalize you for the lack of cooperation. This situation can be very costly.
Once the insurance company has completed it’s final audit, with your cooperation or not, they will send you the bill and expect payment. If you don’t pay the premium audit bill they will turn it over to a collection agency or attorney for action. And they will pursue all avenues available to them to collect the premium due.
There’s a right way and wrong way to cancel a workers comp policy.
The right way is to:
- Make contact with your insurance agent or insurance company and request in writing that they cancel your policy;
- Allow the insurance company to perform the cancellation audit;
- Verify the cancellation audit information is correct;
- Once you verify it’s correct, pay all additional premium you owe.
The wrong way is to:
- Stop paying your premium bill without explanation;
- Do not cooperate with your insurance company and the cancellation audit process;
- Refuse to pay the correct premium you owe.
I guess the point of this blog is don’t just stop paying your bill! If you have a problem with your workers compensation policy or if you need to cancel the policy contact your insurance agent and do it the right way! Sign a cancellation request and allow the cancellation audit to be completed. If you have a problem after the final audit then seek help from an independent workers compensation consultant.
Hope this helps you out! Thanks!