Is the date of inception of the insurance policy different than the effective date of the policy?

Q:

Is the date of inception of the insurance policy different than the effective date of the policy?

A:

The date of inception and the effective date of the policy are terms that generally refer to the same thing. They refer to the date at which coverage under the terms described on the insurance policy begins. It signals the start of the contract and, from then until the expiry date, both parties are bound to adhere to the conditions of the insurance policy.

In some instances, however, the inception date refers to the date at which the insured first enters into an insurance contract with a specific insurer, while the effective date marks the start of coverage under a specific policy. In these cases, the effective date is updated every time the policy is renewed while the inception date remains the same.

These dates are important for two main reasons. First, as of the effective date, the insured will need to start adhering to the terms, conditions, and responsibilities of the policy. Otherwise, they run the risk of not being fully covered by the policy. Second, this means that any losses that occur before the effective (or inception) date will not be covered under the policy.

There is a slight caveat to the second reason I mentioned about the timing is losses: it is not universally true. For example, in Crime Insurance policies, there is a common clause regarding losses sustained under a prior insurance policy. It states that the new policy will cover losses that occurred under the previous policy if the old policy was similar and the only reason the old policy doesn't cover the loss is because the reporting period has passed. This clause exists because losses from things like employee dishonesty or employee theft are hard to detect and are typically only discovered much later (learn about the 5 Types of Crime Insurance Policies Businesses Should Consider).

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About the Author: (Director of Education at PNC Learning)

Jacques grew up around the insurance industry and began actively participating in 2013. Since then, he has gotten a Level 2 license, won Insurance Council of BC awards in 2015 and 2020 for academic excellence in the insurance licensing courses. He educates insurance professionals through PNC Learning and as a Thought Leader at ReFrame Insurance.

In his day job as an insurance broker, he helps businesses with creative risk management solutions and strategic advice when it comes to insurance.

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