Claims Made Basis, Retroactive Date, Indemnity Limit – All those Confusing Terms about Professional Indemnity Insurance for the Freelance Community Explained.
Professional Indemnity Insurance in the freelance world can be pretty confusing. When getting a quote, we are often confronted with insurance jargon that we simply don’t understand. So, we are going to give you the 101 on the top three phrases we get asked about which hopefully will make buying insurance for you, that little less complicated.
Claims Made Basis
Professional Indemnity Insurance in the UK is provided on what is known as a ‘claims made basis’ – So, what does that actually mean and how does it affect you as a freelancer?
Most insurance policies are offered on a claims occurred basis. So, for example, let’s say you bumped your car in Tesco’s car park on Thursday night, which was the day before you were due to move to a new insurer. You called your insurer on Friday morning by which time your policy had finished, however as they were your insurer at the time of the incident they would still look to pay any valid claim. Professional Indemnity Insurance is the complete opposite. Your insurer who is on cover at the time that you become aware of an incident, irrespective of whether it happened during the current policy period or not would look at any valid claim. I.e. when the claim is made, rather than when the claim occurred is the key point here. However, then we must consider, how far into the past will my insurer go? – that’s where retroactive dates come into it.
Professional Indemnity Insurance policies have what are known as retroactive dates. This is essentially the date that an insurer would pay any valid claim that you have just been made aware of, from. So, let’s have a look at an example:
JC is a freelance marketing consultant who established her business in 2010. JC has always bought insurance, not only to protect herself but also because many of her clients require it. JC did a piece of work in 2015, however, her client has just contacted her and accused her of giving them incorrect advice that has led to a financial loss and they are going to be making a claim against her. When JC took out her insurance policy, she had provided the company with the date to which her business was formed, in 2010 which had been set as her retroactive date. So when JC called her insurance company to advise that a client was trying to make a claim against her now for some work she did in 2015, they looked at her retroactive date and saw it was prior to 2015 and would therefore consider the claim.
Retroactive dates are really important. Had JC, for example made a mistake and put hers as the date she was taking out of the policy then she would not be covered for what would otherwise be a valid claim. Here at ipro insure, we provide full retroactive cover automatically on all of our Professional Indemnity policies right back to the company formation date that you provide. Some other providers do not do this and so it’s really important that you check when your policy is covering you from. Without retroactive cover, your policy would not pay out for anything you have done in the past and as we all know, often things can take time to materialise.
This is essentially the amount of money that your policy would pay up to for any valid claim. So, for example if you picked a limit of £250,000 then that is the maximum amount your policy would pay out. At ipro insure, our Professional Indemnity Insurance policy limits are for any one claim. This means that you could have several claims in one policy period and you would have your chosen limit available for each. However, some policies are on an aggregate basis which means that the limit is the total and maximum amount they will pay in that policy term, whether that be made up of 1 claim of 5. However, once that limit is reached, those policies may not pay anything further.
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