The insurance industry is famed for its use of jargon but understanding the importance of the term ‘retroactive date’ for your professional indemnity insurance, can mean the difference between a claim being paid or rejected.
Understanding the importance of a ‘retroactive date’ when buying professional indemnity insurance
If your business needs professional indemnity insurance then protection should be in place from the first day you start trading. For many businesses, this is not always the case. You might have been unaware of the need for professional indemnity cover or perhaps took the view that you only had a few small clients and the likelihood of being sued was remote. It’s worth noting that every business that provides advice as part of its service, needs to consider this important cover in case anything goes wrong and a client decides to take legal action.
What if your circumstances changed and you suddenly found that you had taken on larger corporate clients? Some clients will insist that you have professional indemnity cover, while you may also realise that protecting yourself in the event of something going wrong is the right thing to do. As a result, you buy a professional indemnity policy to start from the beginning of the new contract with your bigger client.
When you may not be covered
A few months later, one of your earlier clients claims there are problems with the work you carried out for them and threatens to sue. No problem you think, my professional indemnity insurance will cover me. Unfortunately in this case it won’t, because the policy you bought doesn’t cover you for work carried out before the inception date of the policy (the actual date you bought the cover).
When buying professional indemnity cover, you should be asked what date you want the policy to run from. If you’re replacing a previous policy, make sure you tell them what date that original policy started from and this effectively becomes your ‘retroactive date’. Any work done back to that date will then be covered.
Apply a retroactive date
If you have never had professional indemnity insurance, you can discuss with your insurer the possibility of applying a retroactive date to when you first started trading. They will need to be comfortable that you’re not expecting a claim imminently from your past work and there is no ulterior motive behind the request. An extra amount will probably be charged with your premium but it provides peace of mind.
If you don’t know how far back your professional indemnity policy covers you for – what the retroactive date is – check with your insurer who will be able to let you know. Understanding the importance of a retroactive date is one piece of insurance jargon that shouldn’t be ignored.