A retroactive date defines how far back in time a loss can occur for your policy to cover your claim. If a claim happens prior to your retroactive date, your policy won’t provide benefits. It’s a feature of claims-made professional liability or errors and omissions insurance.
A retroactive date, or retroactive insurance, is a feature of claims-made policies (professional liability or errors and omissions) that determines whether your policy will cover losses that occurred in the past. If damages happened before this date, any ensuing legal judgment, settlement, or attorney fees will be your responsibility.
In cases where you’ve purchased a policy for the first time, your retroactive insurance date is the same as the date your policy started. However, if you had one or more professional liability or E&O insurance policies in the past, your retroactive date would be the earliest date from which you continuously kept your coverage active.
As a small business owner, you know it’s important to understand how your insurance policy works.
A claims-made policy provides benefits only if you file a claim after the policy start date. If you cancel your policy and then report a claim, it will not be covered.
In this case, if you had a $1 million claims-made policy and are sued for $1 million in your first year, you’d no longer have coverage. That is, unless you increase your policy limit in the second year.
Occurrence-based and claims-made policies are often found in specific types of insurance coverage.
For example, claims-made policies will often be found in your directors and officers coverage and your professional liability insurance, which is also referred to as errors and omissions insurance.
If you’re just starting out, you may want a lower cost claims-made policy.
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Your claims-made retroactive date is important because it determines how far back in time an incident can occur for your policy to still protect you. Claims-made insurance policies only cover liability claims that surface while your policy is active. The original loss can occur in the past, even many years in the past. But for it to provide a continuous safety net, you must avoid any gaps in insurance coverage.
An important consideration: Dropping your professional liability insurance policy for even a few days or weeks can have damaging consequences many years in the future if an incident occurs during the gap. Costly legal expenses might fall entirely on you instead of on your insurance company if you don’t keep your policy active at all times.
You can update your policy or switch insurers if you believe you can get a better price or service and still maintain the same retroactive date. However, always clarify with your new insurer what your retroactive date will be.
If you’ve maintained continuous coverage for many years, then make sure the insurer sets your retroactive date to the earliest date from which you’ve been continuously insured, not the inception date of your new policy. This will give you a much broader safety net, potentially saving you thousands of dollars in legal expenses should you ever get sued.