Insurance serves as an umbrella, protecting holders from loss. A retroactive date impacts insurance liability by determining how far out this umbrella extends. Because the presence, or lack thereof, of a retroactive date can play an important part in determining what is covered by an insurance policy, it is important for insurance holders to understand what retroactive dates do and how they impact coverage.
Depending upon the type of insurance you hold, you may be able to claim an event that occurred before the policy was issued. For example, if a doctor has malpractice insurance, he may be able to use that insurance as protection if he is sued after the date the insurance was issued for an event that happened in the past. A retroactive date limits the insurer's liability for these prior events. If the policy has a date of this type, the holder cannot claim anything that happened prior to this retroactive date.
For an insurer, having a retroactive date is advantageous, as it limits the number of things for which it will have to pay out. With a retroactive date in place, an insurer can more effectively judge the quality of a candidate, as he will not have to worry about a skeleton from the candidate’s closet popping up at a later date and costing the company money.
Lack of Coverage
Insured individuals do not benefit from the presence of a retroactive date, as it makes the policy less valuable to them. Anything that limits claims, such as a retroactive date, will make it more difficult for the insured to use the policy as protection. With a retroactive date in place, the insured individual may be left uncovered should he later discover that an event from his past has not been resolved.
While some companies do offer policies without a retroactive date, they are generally more expensive than those with such as a date. Because insurers take on more burden of responsibility when there is no retroactive date, it is more likely they will have to pay out, making the policy itself more valuable and, as a result, more costly.