What Is a Retroactive Date on Professional Indemnity Insurance?
Professional indemnity insurance provides coverage for claims made against a company alleging that they negligently committed an error on the job. It is generally purchased by companies that are in the process of expanding or by existing businesses engaging in high-risk activities. The insurance covers damages to others due to the company’s actions and includes both physical and mental injuries. It also pays for legal costs related to proceeding with litigation. So what is a r etroactive date on professional indemnity insurance? Read on to learn more.
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What Is a Retroactive Date on Professional Indemnity Insurance?
Most of the time, retroactive policies cost more than policies that start on the date you purchased them. It is essential to ensure you compare apples to apples when comparing policies. A retroactive policy may protect you from a claim that occurred five years ago for an injury that took place a year after purchase. In contrast, an annual policy will not cover you for injuries or damage that happen outside of its coverage period.
Retroactive professional indemnity insurance plans can be helpful to protect your business from personal injury claims that are made years after the incident occurred. However, you must understand precisely how retroactive coverage works so you are making informed decisions about how to protect your business.
If an insured loss had occurred at a date before the policy started, it’s classified as a retroactive date. The best professional indemnity insurance plans will cover these instances. Retroactivity is coverage extending back before the date of purchase or last renewal. Insurance companies may impose a time limit of three years for these types of claims.
How do Retroactive Policies Work?
Some companies purchase insurance to protect employees from claims that their actions caused damage to others. When an insured loss had occurred at a date before the policy started, it’s classified as a retroactive date. Retroactivity is available on physical, mental, and economic claims but not on criminal or other types of claims.
Retroactive policies are helpful because it can often take months or even years before a problem with your work shows itself. Negligence at work can have disastrous consequences many years later. Retroactive policies cover this risk by extending coverage indefinitely, or commonly three years.
An example of a professional indemnity policy that does not have retroactive coverage is this example from AIG. The language states “Date of Policy” as the effective date, and any loss must be reported within 90 days after first knowledge of a claim. The retroactive coverage is limited to the first 90 days of the policy.
All plans do not cover retroactive insurance and typically carries a higher premium. For the most part, it only protects from claims made against you within the first three years of your coverage. In addition to an additional premium, retroactive policies also tend to have different limits for bodily injury and property damage.
Who Needs Retroactive Policies?
Retroactive policies are recommended for those who frequently work in high-risk environments and may not have any previous claims against them. When working in such an environment, your insurance provider must extend past the effective date of your policy, so you are protected against all claims regardless of the time they occurred.
A company in the manufacturing sector may purchase a retroactive policy to cover accidental injuries that happen on the job. An employee making components that are later sold to another company may cause injury to someone without being aware of the error. They may have been manufacturing the part according to specifications that were flawed or incomplete when they began work. The injured party may not show up until years later, long after the company that manufactured the part has ceased operating. The manufacturer should purchase a retroactive policy.
Considering a Retroactive Policy ?
Retroactive coverage should not be used to defend against ancient cases incidents or entirely fraudulent claims. You are still responsible for any damages you caused during that time and should make an effort to resolve the issue before purchasing retroactive coverage. It’s essential to speak with an insurance agent who can answer your specific questions and recommend the best cover for you.
What Is a Retroactive Date on Professional Indemnity Insurance? To Conclude
In some cases, a company can negotiate a retroactive clause into its professional indemnity policy or with an add-on endorsement. In those instances, coverage would not only extend out from the effective date of the policy but from three years prior as well.
Find out more about the importance of insurance here .
Other useful links about Business Insurance:
Is Professional Indemnity Insurance a Legal Requirement?
How Much Product Liability Insurance Do I Need?
Is Employers’ Liability Insurance a Legal Requirement?
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