Understanding Sunset Clauses in Insurance Policies

A sunset clause in an insurance policy sets a deadline for filing claims once the policy has expired. Sunset clauses occur in what are known as claims-made liability policies -- those that include a time limit on how long they will accept claims after the policy expires or is canceled.

Claims-Made vs. Occurrence

Liability insurance policies are classified as either occurrence or claims-made. Under an occurrence policy you're covered for any incidents that took place when the policy was in force, regardless of when the claim is filed. For example, someone slips and falls on your sidewalk and then experiences complications a couple years later, after you've sold the house and canceled your liability policy. If you had an occurrence policy you'd still be covered because the fall happened while you were insured. A claims-made policy would cover the incident only if the claim was filed before a specific date. If it was filed too long after the policy's expiration, you wouldn't be covered.

Set the Date

The sunset clause is the provision of the policy that spells out how long the insurer will accept claims for incidents that took place while the policy was in force. For example, a construction company may buy a policy with a sunset clause of 10 years to cover it while it puts up a specific building. Though the policy may expire when the building is completed, the insurer will continue to respond to claims filed 10 years afterward. Insurers may also sell coverage that continues beyond the sunset date, an extension known as a tail.