What is 'Backdated Liability Insurance'

Backdated liability insurance provides coverage for a claim that occurred before the insurance policy was purchased. Backdated liability insurance is not an insurance product frequently offered by insurers, since the insurer cannot be certain how much the loss will amount to.

BREAKING DOWN 'Backdated Liability Insurance'

Companies purchase backdated liability insurance coverage to protect themselves from risks that may arise from past business activities. It covers possible gaps in coverage that are only discovered after a loss event occurs. The company that experiences this loss can either self-insure, meaning that it pays for the loss itself, or can try to purchase a backdated liability insurance policy that will cover the loss.

This type of coverage may be offered when the amount of the claim is very uncertain and potentially long delays in payment may result. The premium charged by the insurer, coupled with its investment value, is calculated to be sufficient to cover all the claims from the incident. This is not a commonly available type of coverage. Insurance companies typically don’t offer backdated coverage because the loss has already occurred. In most cases, the insurer will conduct actuarial analysis on a potential policyholder to determine the likelihood of a claim being made, but in the case of backdated coverage, the insurer is already dealing with the loss and instead must determine how severe the loss will ultimately be.

As with most insurance policies, a backdated liability insurance policy will still contain a coverage limit. This protects the insurer from unlimited losses in the case that a claim becomes more expensive than estimated. The insurer will still seek to reduce the claim amount as much as possible, as the less it is forced to pay out the more it keeps in profit. This can be a complicated undertaking because liability claims, such as bodily injury, can be expensive.

Insurers may offer this type of coverage if they determine that the premiums charged will exceed the cost of settling the claim. The insurer will also factor in the investment income that can be earned on the premium. Some liability claims may take a long period of time to settle, which will allow the insurer a longer time period to earn investment income.

What Backdated Liability Insurance Typically Covers

A typical backdated liability insurance is usually a commercial general liability policy that provides coverage for claims of bodily injury or other physical injury, personal injury (libel or slander), advertising injury and property damage as a result of your products, premises or operations. It can be offered as a package policy with other coverages such as property, crime or automobile insurance.

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