Guide to Contractual Liability Insurance (CLIP) - 2025 Edition
Contractual Liability Insurance Explained for Modern Risk Transfer
Inside This CLIP Insurance Guide
What is a CLIP (Contractual Liability Insurance Policy)?
What is a CLIP?
CLIP stands for Contractual Liability Insurance Policy - a fast-emerging commercial insurance product that covers financial losses tied to contractual promises.
Unlike traditional insurance, which is triggered by physical damage or third-party lawsuits, CLIP insurance protects your business from the financial risk of failing to meet contractual guarantees.
CLIP is especially valuable for companies that offer:
Refund guarantees (e.g., underused SaaS credits or cloud commitments)
Performance-based pricing models (e.g., uptime SLAs or savings guarantees)
Warranties on consumer goods
Termination-for-convenience (T4C) exposure in government contracts
Revenue guarantees or outcomes-based contracts tied to enterprise deals
It’s most commonly used by:
Consumer Financial Guarantees, Warranties and Refunds
SaaS and API platforms
Cloud infrastructure providers
Consumer good companies (extended warranties)
Venture-backed startups offering performance guarantees
In short: CLIP Insurance turns a risky contractual guarantee into a regulated, insurable event - unlocking growth, protecting your balance sheet, and satisfying enterprise buyers.
Section 1: What CLIP Insurance Actually Covers
(And What It Doesn’t)
What CLIP Insurance Covers
Contractual Liability Insurance Policies (CLIPs) are purpose-built to cover financial obligations arising from contractual guarantees - obligations that are typically excluded under traditional insurance policies.
CLIP coverage applies when a company is contractually required to pay a client or buyer - and that obligation isn’t triggered by bodily injury, property damage, or third-party harm (the usual triggers for GL, Tech E&O, or Cyber).
CLIP: Common Covered Events
Although every CLIP can be tailored to fit the unique needs of emerging technologies, there are core coverage features that have become standard across most programs.
1. Refund Obligations
If a client underuses a prepaid service like, SaaS credits or cloud infrastructure commitments, and is owed a refund, CLIP can step in.
CLIP pays the refund or reimburses the insured.
2. SLA Violations
If you miss a contractual service-level agreement (e.g., uptime guarantee), the resulting penalties or refunds are insurable under a CLIP policy.
CLIP pays the contractual penalty or refund amount.
3. Performance Shortfalls
When your contract includes a defined outcome, such as “Save 20% or get your money back,” CLIP can cover the cost of meeting that guarantee.
CLIP covers the financial obligation tied to the promised result.
4. Consumer Warranty & Buyback Programs
When your business offers warranties (Retail/electronics warranties, product buybacks, or extended service guarantees), product buybacks, or extended service guarantees, the financial risk of honoring those commitments can be significant.
CLIP provides the capital backing to fund those obligations.
5. Portfolio Refund Risk
If your exposure comes from hundreds or thousands of small contractual refund obligations (e.g., APIs, per-seat pricing, or cloud billing platforms), CLIP can be structured to cover pooled losses.
CLIP is structured to support portfolio-level retention and aggregated limits.
Types of CLIPs
Depending on how they are structured, CLIPs can reimburse a company for its own contractual liabilities, protect a customer from the company’s failure to perform, or provide excess protection above collateralized reserves.
1. Full Reimbursement CLIP
A full reimbursement CLIP protects the company (the “obligor”) that makes a promise or guarantee to its customers.
If the company must perform under a covered contract - such as a service contract, membership program, or warranty - the policy reimburses the obligor for those costs.
This structure is common in the warranty and extended-service market and is often required by state regulators to ensure that customer commitments are backed by insurance rather than unfunded liabilities.
In essence, it functions as a financial backstop for the company’s obligations to its customers.
2. Failure-to-Perform CLIP
A failure-to-perform CLIP shifts the focus from the company to the customer.
In this model, the insurer agrees to indemnify or pay the customer (the “beneficiary”) directly if the insured company fails to meet a defined contractual obligation.
This version is increasingly used in technology, fintech, and logistics sectors - anywhere a company offers a public “insured commitment” or “guaranteed result.”
The coverage responds only to fortuitous events, not pure credit or market risk, making it a compliant and insurable form of performance protection.
3. Excess-Coverage CLIP
An excess-coverage CLIP provides protection above a defined attachment point or self-insured retention, operating much like an excess layer in traditional insurance.
It is typically used when a company has already collateralized a portion of the risk - through a trust, escrow, or captive - and wants to transfer only the tail exposure to an insurer or reinsurer.
This approach is common in larger structured programs or when regulators require the company to retain a certain level of risk participation.
It enables scalability by allowing a company to leverage its existing reserves while still achieving regulatory compliance and capital efficiency.
Section 2: Real-World Examples from
SaaS, GovTech, and API Platforms
Example 1: Cloud Platform Offering Guaranteed Savings Plans (GSPs)
The Scenario:
A cloud optimization startup enables enterprise clients to pre-purchase discounted AWS/Azure capacity - with a guarantee:
“If you don’t save at least 15%, we’ll refund the difference.”
The Risk:
If usage predictions are wrong or workloads shift, the startup owes hundreds of thousands in refunds.
Traditional insurance (GL, E&O) does not cover this.
Receivables financing costs 10%–13% annually.
The CLIP Solution:
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A $10M CLIP policy was structured with a 2.5% premium and a $500K portfolio retention.
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Coverage applied to all contracts using a pre-approved clause.
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Enabled the company to scale enterprise sales with financial guarantees - without carrying contingent refund risk on the books.
Result: Lower cost of risk than financing, faster sales cycles, and a stronger balance sheet heading into Series C.
Example 2: GovTech Vendor with T4C Risk
The Scenario:
A GovTech platform secured a multi-year software contract with a U.S. federal agency.
The contract included a Termination for Convenience (T4C) clause - allowing the government to cancel the contract at any time, for any reason.
The Risk:
The vendor invested upfront in infrastructure, onboarding, and security compliance.
If the government terminated the deal, the company would eat $3M in unrecoverable costs.
The CLIP Solution:
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A $5M CLIP policy was underwritten to cover T4C losses.
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Terms mirrored the cancellation clause in the contract, with a clear definition of lost revenue.
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The policy also helped unlock project financing, since investors viewed T4C exposure as insurable.
Result: Contract signed, onboarding completed, and company secured non-dilutive capital with CLIP as a backstop.
Example 3: API Startup with Uptime and Performance Guarantees
The Scenario:
A Series B startup offering critical API infrastructure guaranteed 99.99% uptime and committed to automated refunds for SLA violations:
“If uptime falls below threshold, customers are refunded 50% of monthly spend.”
The Risk:
An AWS outage or internal deployment error could trigger mass refunds across hundreds of customers simultaneously.
The CLIP Solution:
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A portfolio-based CLIP was structured, with event-based triggers tied to defined uptime metrics.
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The insurer modeled correlated risk across contracts, capped exposure, and offered coverage limits that aligned with the startup’s refund ceiling.
Result: The policy helped support a large enterprise deal and mitigated legal exposure around SLA refunds.
Example 4: Supply Chain Automation Startup with Deployment Guarantee
The Scenario:
A logistics SaaS company serving manufacturers promises automated savings from warehouse optimization software. Contractually:
“If implementation does not result in $X in cost savings within 12 months, the client will receive a rebate equal to 30% of total fees.”
The Risk:
Delays in deployment, internal process adoption, or external vendor issues could derail savings - leaving the startup on the hook for hundreds of thousands.
The CLIP Solution:
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A $4M CLIP policy with defined deployment milestones and cost savings triggers.
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Risk modeled based on historical time-to-value data and savings variance.
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Structured with a 90-day “buffer period” before refund eligibility to allow for delays.
Result: Helped close a major contract with a Fortune 500 client and aligned risk with go-live realities.
Example 5: HealthTech Platform with Refund-If-Not-Used Contract
The Scenario:
A HealthTech platform offering virtual behavioral health services sells to large self-insured employers. Contracts include a clause:
“Unused visits over 6 months will be credited back at 80% of original value.”
The Risk:
Large employers underutilizing services (e.g., low employee adoption) create refund exposure in the hundreds of thousands.
Traditional health insurance or Tech E&O policies do not apply - there’s no third-party claim or negligence.
The CLIP Solution:
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A $3.5M CLIP policy was structured on a rolling quarterly refund basis.
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Retention applied per client, with a stop-loss ceiling across the employer portfolio.
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Underwriting required historical utilization data by employer industry.
Result: The policy helped secure a national benefits contract, and supported the company’s positioning as a “risk-aligned partner” to HR and benefits teams.
Example 6: B2B Hardware Product with Performance Guarantee
The Scenario:
A hardware company sells smart grid devices to utility operators with a unique guarantee:
“If your total cost of grid outages doesn’t fall by at least 10% after 12 months, we’ll refund 20% of hardware and installation fees.”
The Risk:
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Outages are influenced by weather, aging infrastructure, and third-party factors.
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Performance data comes from client-side logs.
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Refund exposure is triggered by outcome-based contract language, not product failure.
Why This Isn’t Covered by Product Warranty or GL:
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The product works, but if it doesn’t achieve savings, a financial refund is triggered.
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There’s no property damage or bodily injury.
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This is contractual performance liability, not physical failure.
The CLIP Solution:
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A $2M CLIP policy tied to approved installation contracts.
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Client provided baseline data and variability thresholds.
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Coverage excluded force majeure events to reduce volatility.
Result: Company closed a regional deployment deal that previously stalled due to CFO pushback on refund exposure. Also improved revenue recognition treatment under GAAP.
Section 3: How CLIP Differs from Tech E&O, Cyber, and General Liability
Many companies wrongly assume that their existing insurance policies (Tech E&O, Cyber, or General Liability) already protect them from contractual obligations.
They don’t.
CLIP insurance fills a gap that traditional policies specifically exclude: the financial liability that arises when you voluntarily promise something in a contract - and then owe money if you don’t deliver.
Why Tech E&O Doesn’t Cover Contractual Refund Risk
Technology Errors & Omissions insurance is designed to protect you from third-party lawsuits caused by professional mistakes - like bugs in your code or service delivery failures that harm a customer.
But it won’t cover:
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Voluntary refunds
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SLA penalties
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Missed savings guarantees
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Revenue-based performance promises
Even if your product worked perfectly, if the customer didn’t hit the outcomes you promised, Tech E&O will likely deny the claim. There’s no third-party harm - just a contractual obligation to pay.
Why Cyber Insurance Doesn’t Apply
Cyber liability insurance covers data breaches, ransomware attacks, and losses tied to unauthorized access or security failures. It’s built for external threats, not internal performance.
Cyber won’t cover:
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Refunds triggered by low adoption
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Penalties for missed uptime targets
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Non-malicious downtime
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Failure to meet usage thresholds
If the issue isn’t a security breach or privacy violation, cyber won’t respond.
Why General Liability (GL) isn't Applicable
General liability (GL) covers physical injury, property damage, and premises-related risks. For software, SaaS, or cloud platforms, GL is irrelevant.
It does not apply to:
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SaaS refunds
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API performance failures
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Missed contract milestones
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Outcome-based pricing shortfalls
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If there’s no bodily harm or tangible damage, GL isn’t even in the conversation.
Why CLIP Is Different, And Necessary
CLIP insurance is the only form of coverage designed to protect you from defined financial obligations tied to a contract - especially those involving:
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Pre-negotiated refunds
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SLA violation penalties
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Performance or ROI guarantees
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Termination-for-convenience (T4C) clauses in public contracts
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Adoption or usage-based thresholds
These are first-party liabilities. In other words, you are the one expected to pay, and they live in your contracts, not in customer lawsuits.
Traditional insurance ignores them. CLIP turns them into an insurable event.
Section 4: When to Buy CLIP and How to Structure It
Most companies don’t think about CLIP insurance until a major enterprise buyer pushes back on a refund clause… or an investor flags a contingent liability in the data room.
But the best time to buy CLIP coverage is before the risk becomes material - when you're designing contracts, entering large deals, or shifting to performance-based pricing models.
1. Your contract includes refund or rebate obligations.
If you're offering to return money for underused software, missed benchmarks, or poor adoption - you're carrying balance sheet risk.
2. You're entering government, municipal, or education contracts.
Most of these include Termination for Convenience (T4C) clauses, which allow clients to cancel without cause. CLIP can backstop that risk.
3. You’ve shifted to outcomes-based or risk-aligned pricing.
Guarantees like “save 15% or we refund the difference” or “99.99% uptime or credit issued” may feel like sales tools, but they create real, financial liabilities.
4. Your enterprise clients are pushing for contractual guarantees.
If you're in late-stage sales negotiations and your client wants you to “stand behind the promise”, CLIP can turn that risk into a legitimate, underwritten solution.
5. You're preparing for financing, M&A, or debt underwriting.
Refund liabilities - especially if they’re recurring or portfolio-wide - may be flagged during due diligence. Having insurance in place can reduce scrutiny and unlock better terms.
Pro Tip: Structure the Policy to Match the Contracts
Define the Trigger:
Start with the clause in your contract - the event that creates liability. It could be a refund threshold, a termination clause, or a failed SLA metric. Make sure it’s specific and measurable.
Know Your Exposure:
Calculate your total possible financial obligation. That includes per-client maximums, portfolio-wide exposure, and historical refund trends.
Set Your Retention:
This is your deductible - how much you’re willing to self-insure. For example, you might retain the first $250,000 in refunds before the policy responds.
Cap the Limit:
The CLIP policy will cover losses above the retention and up to a defined cap - say, $5M or $10M depending on the portfolio size and client base.
When CLIP Unlocks Growth
You don’t always buy CLIP because something has gone wrong.
CLIPs enables growth by turning contractual obligations into insurable events.
Many companies buy it because it allows them to:
Offer bigger guarantees without carrying bigger risk
Close enterprise and public-sector contracts faster
Free up capital otherwise reserved for refund pools
Satisfy CFOs, procurement, and investors who flag refund clauses
Backstop exposure from a growing number of sales with risk-based pricing
Section 5: How CLIP Policies Are Structured, and the Role of Captives
Unlike off-the-shelf insurance products, CLIP policies are custom-built to reflect the structure of your contracts, refund triggers, and financial exposure. That’s what makes them powerful, and complex.
Core Elements of a Clip
1. Retention
This is the amount you agree to self-insure before the policy kicks in - like a deductible.
It can be structured in two ways:
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Per-event: You retain the first $50K per refund or cancellation
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Aggregate/portfolio: You retain the first $500K across all refund events in a year
For SaaS or API platforms with lots of small refund risks, portfolio retention is common.
2. Limit of Insurance
This is the maximum amount the policy will pay out.
It could be:
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A flat annual limit (e.g., $5M aggregate)
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A per-client limit (e.g., $250K per contract)
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A combination of both
Underwriters want to know your total refundable exposure and how much of it you want to offload.
3. Triggering Language
This is the contractual clause that activates coverage. It must be:
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Clear
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Quantifiable
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Tied to financial consequences
Example: “Client will receive a 25% refund if uptime falls below 99.5% for more than 2 consecutive months.”
CLIP only works if the event that creates liability is objective and trackable.
4. Attachment Point
Some CLIPs attach above a contractual threshold (like a refund floor).
Example: “CLIP covers all refunds above $100K per contract or $1M per quarter.”
This allows the insured to handle minor refunds - and transfer the real balance sheet risk to the insurer.
5. Pricing Model
CLIP premiums typically range from 1% to 6% of the insured value or refund pool.
Pricing depends on:
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Refund history
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Policy structure
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Retention size
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Client concentration
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Contract uniformity
Section 6: Pricing Benchmarks and Policy Limit Structures
One of the most common questions about CLIP insurance is:
“How much does it cost?”
Because CLIPs are custom-built policies tied to contract language and financial risk, there is no flat rate card. But as the market matures, benchmarks are beginning to emerge, and they can help you understand where your pricing will likely fall, and how to structure your policy efficiently.
CLIP Pricing Benchmarks
Most commercial CLIP policies fall within a 1% to 6% rate on the insured contractual liability.
Most commercial CLIP policies fall within a 1% to 6% rate on the insured contractual liability.
What does that mean?
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If you're insuring up to $5M in annual refund exposure, your premium could range from $50K to $300K annually, depending on retention, risk structure, and contract uniformity.
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For early-stage companies with less historical data, expect pricing to lean closer to 4%–6%.
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For mature companies with repeatable contracts and clean refund history, pricing can drop to 1%–2.5%, especially for pooled risks.
Common CLIP Pricing Models
This is the space to introduce the Features section. Use this space to highlight your unique aspects and to present specific credentials, benefits or special features you offer.
1. Flat Rate on Total Refund Exposure
Used for simpler portfolios with uniform contract terms.
Example: Client estimates $3M in annual refund exposure across 200 SaaS clients. CLIP covers all above $500K with a $2.5M limit. Premium = 3% of insured layer → $75K.
2. Tiered Premium Based on Risk Tranches
Used when contracts vary heavily in size or trigger language.
Example: First $500K at 4%, next $1.5M at 2.25%, final $3M at 1.5%. Weighted premium = $110K on $5M coverage.
3. Pooled or Portfolio-Based Rate
Used for high-volume, small-value contracts - often APIs, SaaS, payments, or infrastructure.
Example: Refund triggers are similar across clients, with aggregate loss volatility predictable across the cohort. Underwriter agrees to pooled model with single retention and 2.8% premium rate.
How to Reduce CLIP Cost Without Gutting Coverage
Here are ways to reduce pricing while keeping protection meaningful:
Raise retention - Insurers price risk above your buffer. Retaining $500K vs. $250K can materially lower your premium.
Narrow contract scope - Cover only enterprise clients or public contracts, not your full portfolio.
Tighten trigger language - Move from vague to defined performance benchmarks tied to observable data.
Show refund controls - If you have product adoption teams, monitoring dashboards, or refund thresholds, show them.
Use cohort-based loss modeling - Even with no claims history, you can model refund variability across client types to show predictability.
Section 7: Common Pitfalls When Structuring CLIP Coverage
Because CLIP policies are custom-built, small mistakes in how they’re structured can lead to big problems later - from inflated premiums to denied claims. These pitfalls are especially common when brokers treat CLIP like a traditional E&O or GL policy instead of a contract-specific risk transfer tool.
Mistakes That Create Gaps, Raise Costs, or Kill Claims
A CLIP policy is only as strong as the contract language it’s built on and the data that supports it.
Avoid these pitfalls, and you’ll end up with a policy that responds when needed, costs less to maintain, and actually enables growth.
Pitfall 1: Vague or Subjective Trigger Language
If the clause that activates the CLIP isn’t clear, measurable, and tied to objective data, underwriters will either refuse to quote, or they’ll exclude the clause entirely.
Example of bad trigger:
“If the customer is not satisfied, we will issue a refund.”
Why it’s a problem:
“Satisfaction” is subjective and unquantifiable. Insurers can’t price or pay claims against it.
Better approach:
“If uptime falls below 99.5% in any rolling 30-day period, we will refund 25% of the monthly subscription fee.”
Pitfall 2: Covering the Wrong Scope of Contracts
Trying to cover every contract in your business, including small-value, high-variance, or experimental deals, can make premiums unnecessarily high.
Better approach:
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Cover only the contract types or customer segments where refund exposure is material (e.g., enterprise or public sector deals).
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Keep the policy targeted to the clauses that actually move the needle financially.
Pitfall 3: Setting Retention Too Low
A low retention (deductible) pushes the insurer into paying small, frequent claims, which drives up your rate.
Better approach:
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Self-insure the first $250K–$500K of annual exposure.
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Use the policy to protect against large, balance-sheet-impacting events, not nuisance-level refunds.
Pitfall 4: Mismatched Contract and Policy Terms
If the CLIP wording doesn’t mirror the exact language in your contracts, disputes can arise at claim time.
Better approach:
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Ensure your broker and underwriter review actual contract templates.
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Use consistent, approved refund/SLA clauses across your portfolio.
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Avoid side letters or custom clauses that fall outside policy coverage.
Pitfall 5: No Refund or SLA Data
Underwriters price risk based on history. If you have no refund/SLA performance data, they’ll assume the worst.
Better approach:
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Track refund exposure by contract type, client segment, and trigger cause.
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Even 12 months of clean, consistent data can reduce premium by 20–40%.
Section 8: How to Request a CLIP Review
If your contracts include refund obligations, SLA penalties, or performance guarantees, the only way to know if you’re carrying uncovered liability is to have a CLIP specialist review them.
At Upward Risk Management (URM), we’ve built a fast, no-obligation process for evaluating whether CLIP coverage could protect your business - and, just as importantly, whether it can be structured to actually pay when needed.
