The Chinese athlete, who was to have competed in the 110 metres hurdles, signed up recently with Ping An Insurance in a $14.6 million deal.
Despite the terms of the contract specifically offering protection against injury, the firm has said that Mr Xiang will not attempt to recoup any money from them.
In a statement, Ping An said: "The national sports council has indicated that the main task now is to help Liu Xiang return to the sports arenaâ¦there's no need to seek an insurance payout from Ping An.''
PICC Property & Casualty, which insures China's Olympic team, also told Bloomberg that there would be no payout for the athlete from them.
Wang Youling, a vice manager at the firm, explained: "The insurance covers accidental damage and injury during the Olympic Games, but Liu Xiang's injury occurred prior to the Games and wasn't caused by accident."
Mr Xiang shot to fame in his native country when he won the sprint hurdles at the 2004 Athens games.
The gold medallist subsequently cemented his place as a national hero by running a world record time in the event.