With the rising cost of living, it's tempting for business owners to cut corners on expenses. One area you might consider is your insurance policies. But before you think about letting your professional liability coverage lapse, there's a crucial aspect you need to understand: the retroactive date.
Simply put, a retroactive date in your professional liability policy is your safety net. It's the date your coverage begins to protect you against claims for wrongful acts, errors, or omissions. Prominently mentioned in your policy, this date ensures that if a claim arises for something that occurred years ago, you're still covered—provided it's after your retroactive date.
Let's look at a practical example to understand this better. ABC Engineering Co, a business operating for over a decade, faced a lawsuit due to a fault in an air conditioning system they designed three years ago. Now, consider two scenarios:
The difference is stark and highlights the importance of maintaining continuous coverage.
Businesses often face 'tail exposure'—the risk of a claim arising long after the incident or even after your policy expires. This is particularly relevant for professional services firms. And let's not forget contractual obligations that often require specific insurance coverage for a certain period.
We get it; times are tough. But dropping your professional liability insurance isn't the solution. Instead, consider these options:
Your insurance isn't just another business expense; it's a vital part of your risk management strategy. A small premium today can save you from a financial disaster tomorrow. And remember, every policy is unique, so consult your broker for specific advice.
Insurance isn't just about ticking a box; it's about ensuring the longevity and stability of your business. So, hold onto that retroactive date—it might just be your business's lifeline.