Professional liability insurance, also known as errors and omissions insurance, is a type of coverage that protects professionals from financial loss due to claims of negligence or errors in their work. As a professional, it is essential to have this type of insurance to protect yourself from potential lawsuits and damages. However, understanding the claims-made policy can be confusing. In this article, we will explain what the claims-made policy is and how it works in more detail.

What is a Claims-Made Policy?

A claims-made policy is a type of professional liability insurance policy that covers claims that are made during the policy period. This means that the policy only covers claims that are made while the policy is in effect. If a claim is made after the policy has expired, it will not be covered.

Claims-made policies are different from occurrence policies, which cover claims that arise from incidents that occurred during the policy period, regardless of when the claim is made. Occurrence policies are generally more expensive than claims-made policies, as they provide broader coverage.

How Does a Claims-Made Policy Work?

Claims-made policies have two important dates: the retroactive date and the policy expiration date. The retroactive date is the date from which the policy covers claims. Claims that arise from incidents that occurred before the retroactive date are not covered. The policy expiration date is the date when the policy ends, and coverage ceases.

One of the unique features of a claims-made policy is the extended reporting period, also known as the tail coverage. This is an optional coverage that extends the policy period for a specified period after the policy has expired. The extended reporting period allows you to report claims that are made after the policy has expired, as long as the incident occurred during the policy period.

Why is a Claims-Made Policy Important?

Claims-made policies are important for professionals because they provide coverage for claims that are made during the policy period. Without this coverage, professionals would be at risk of financial loss due to lawsuits and damages. Claims-made policies also provide peace of mind, knowing that you are protected from potential claims.

Tips for Choosing a Claims-Made Policy

When choosing a claims-made policy, there are a few things to keep in mind:

1. Retroactive Date: Make sure the retroactive date covers the period when you began practicing your profession. If you have been practicing for several years, you may need to purchase an extended reporting period to cover claims that arise from incidents that occurred before the retroactive date.

2. Policy Limits: Make sure the policy limits are sufficient to cover potential claims. You may want to consider purchasing excess or umbrella coverage to provide additional protection.

3. Tail Coverage: Consider purchasing tail coverage to provide coverage for claims that are made after the policy has expired.

4. Insurance Carrier: Choose a reputable insurance carrier with a strong financial rating and a good reputation for handling claims.

The Importance of Retroactive Date

The retroactive date is an essential aspect of claims-made policies. It is the date from which the policy covers claims. Claims that arise from incidents that occurred before the retroactive date are not covered. It is crucial to ensure that the retroactive date covers the period when you began practicing your profession. If you have been practicing for several years, you may need to purchase an extended reporting period to cover claims that arise from incidents that occurred before the retroactive date.

The Importance of Policy Limits

Policy limits are the maximum amount that an insurance company will pay for a claim. It is essential to make sure that the policy limits are sufficient to cover potential claims. If the policy limits are too low, you may be responsible for paying the difference out of pocket. You may want to consider purchasing excess or umbrella coverage to provide additional protection.

The Importance of Tail Coverage

Tail coverage is an optional coverage that extends the policy period for a specified period after the policy has expired. The extended reporting period allows you to report claims that are made after the policy has expired, as long as the incident occurred during the policy period. Tail coverage is essential for professionals who are retiring or changing careers, as it provides coverage for claims that may arise after the policy has expired.

The Importance of Insurance Carrier

Choosing a reputable insurance carrier is critical when purchasing a claims-made policy. You want to choose a carrier with a strong financial rating and a good reputation for handling claims. A carrier with a weak financial rating may not be able to pay claims, leaving you responsible for the damages. A carrier with a poor reputation for handling claims may make the claims process difficult and time-consuming.

Conclusion

In conclusion, understanding the claims-made policy is essential for professionals who want to protect themselves from potential lawsuits and damages. Claims-made policies provide coverage for claims that are made during the policy period and have a retroactive date and policy expiration date. When choosing a claims-made policy, make sure to consider the retroactive date, policy limits, tail coverage, and insurance carrier. With the right policy in place, you can have peace of mind knowing that you are protected from potential claims.