Retain Insurance Policies Indefinitely

April 13, 2006

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Selecting the types and levels of insurance is vitally important to a small business owner seeking to avoid day-to-day liability risks. So an owner should follow some general insurance guidelines if he or she wants to take full advantage of the protections purchased.

For example, most policies insure against any covered loss that occurred during the policy period. Thus, even though a policy expires, claims can still be made that will be covered under the policy.

Don't expect the insurance company to willingly provide you with a copy of a policy in effect for an earlier period in which a covered event occurred, or even admit that you were covered during that period.

So be prepared to prove that you were insured during the period in which the claim arose and be able to produce a copy of the policy in effect for that period. Remember that policies are amended from time to time. A current policy may not be identical to the policy that was in effect when the claim arose.

Generally, insurance policies should be retained indefinitely. This is especially true with respect to liability policies. At the very least, liability policies should be retained until all of the statutes of limitations for all possible causes of action have expired.

Generally, tort actions must be filed within two or three years of the event that gave rise to the damages. However, laws vary from state to state, and in certain instances (e.g., personal injuries due to exposure to asbestos), states have significantly lengthened the statute of limitations. The best practice is to retain insurance policies indefinitely.

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Ideally, the actual policy should be kept in a secure location, such as a bank safety deposit box. A copy should be kept in a separate location, in a fireproof box, with a note attached to it that indicates the location of the original policy. This in fact is a sound practice with respect to all important legal documents.