Companies can accumulate a substantial collection of records over their years of operation. While no one wants to be stuck with documents that are no longer useful, throwing out a document only to find out later that you need it can be a costly mistake. Insurance paperwork is particularly troublesome: Many businesses aren’t sure what they should keep and what they can safely send to the shredder.
record retention schedule
The easiest way for a business to manage all the records it acquires is to institute a records retention schedule that defines how long documents will be kept. The program should specifically define the different types of records your company works with and how each should be treated. creating a standard will help ensure that the documents you need are there when the time comes and any unnecessary clutter is kept to a minimum.
retain based on policy types
Given all the different elements involved in running a business, chances are your business has had a variety of insurance coverages throughout its life. Since each can come into play differently in the future, the type of plan you’re dealing with is crucial when determining what to keep and what to throw away.
- occurrence-based policies
- property policies
- complaint policies
- workers compensation
- employee benefit plans
Essentially active forever, incident-based policies cover any loss that occurs during the term of the policy, no matter when the claim is filed. it is not unusual for these claims to come decades after an unknown side effect of the company’s practices has been discovered. Even if processes have changed, a company can be held accountable for its past actions. An example of this is manufacturers who produced asbestos-containing products that were later shown to present a health hazard. If these manufacturers had an incident-based policy in place during the time they were making those products, the companies would be covered by the policy even if it had since expired.
Occurrence-based policies have the potential to save you from future claims that are completely unforeseeable for you today. Due to their long-term protection, these policies should be held indefinitely.
Property policies provide coverage for businesses in the event of a loss involving their property, rented or leased. Like event-based policies, property policies cover any claim involving a loss that occurs during the term of the policy. however, unlike incident-based policy claims, property losses are generally discovered soon after they occur, limiting how long policy records must be kept. for such policies, a
The six-year retention period should adequately cover the possibility of claims.
Claims made policies cover claims made while the policy is active and, depending on the individual characteristics of the policy, may also include a “tail” that extends coverage for a set period after the policy expires . The tail only covers a claim if it is the result of a loss that occurred during the time the policy was initially active. Policy coverage is based on the time a claim is filed and not the date the loss occurred. Because there is a limited likelihood of them coming into play in the long run, six years after the tail expires is an appropriate holding period for policies made by claims.
Time has no effect on an employer’s liability for employee injuries. There are many cases where employees are exposed to health hazards that take years to develop into a serious condition. this frequently occurs in mining companies whose operations exposed employees to dangerous coal dust before its association with the development of black lung disease was known. these companies remain responsible for the exposure no matter how long it has occurred. in these cases, the policy that was in force at that time can also be activated to cover the loss. For these reasons, it’s important to keep records of workers’ compensation policies indefinitely.
Employee benefits are regulated by the Employee Retirement and Income Security Act of 1974 (ERISA). In Section 107, the law contains a general record retention regulation that applies to any plan that is under ERISA. the regulation requires that records be kept for at least six years after the filing date.
While the wording of the regulation does not specifically address the policies themselves, for security reasons, it is
advised that employee insurance policy records be kept for at least six years to ensure federal compliance.
Keeping the right documents can make life a lot easier if a claim is filed. While there are limited federal record retention requirements, the real benefit to a business is ensuring claims are covered by appropriate policies to limit any out-of-pocket expenses. Evaluate your individual situation before developing your records retention policy. Remember, these are only suggested time frames for document retention; If you think your business may need to keep certain records longer, feel free to do so.
See also: How Is PMI Calculated?