Contract periods indicate for what start date and end date claims will be paid. If you are renewing a current policy, this should be fairly easy. As the first contract ends, the new contract picks up where the first left off without any lapse in coverage or complication around payment responsibility.
However, if you are changing policies or policy holders, you will want to read the fine print on both policies. What will happen if a claim occurs during the first policy’s effective dates but is not billed until the second policy’s effective dates? Without proper planning you may not have anyone to turn to pay that bill.
To solve this problem, run-in contracts and run-out contracts are available. Essentially you can create some overlap between your previous and new policy to cover any claims incurred in the few months surrounding your contract change date.
For example, if a new policy goes into effect on January 1, but a claim was incurred on December 20 of the prior year, there’s a good chance that the paperwork won’t be processed or billed until after the January 1 policy start date. With a one year policy, your company would likely have to pay the bill. With a run-in policy, the insurance company would pay the bill. Three months of overlap in incurred/billed dates is the standard.
The most common contract periods are:
- 12/12 – Claims are covered only when the services are incurred and the claims billed within the policy year. This is a common contract length for the first year a company is self-funding.
- 15/12 or “run-in policy” – Claims are covered when services are incurred three months before the policy start date and all those within the policy year.
- 12/15 or “run-out” policy – Claims are covered when services are incurred within the policy year and paid within three months after the end of the policy year. Other common run-out periods are 12/18 and 12/24.
Finally, when negotiating your new contract, be sure to also look at the catastrophic and high value claims section. Since these claim types are becoming more common, caps will likely be put in place as a ceiling on the liability the insurance is willing to pay. You should know what these are before signing a new contract.