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Occurrence vs. Claims Made Policies Explained

Levi Kastner Mar 12, 2024 6:05:07 PM

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Occurrence vs. Claims-Made Policies Explained

We get it—choosing the specifics around your insurance can be overwhelming. All insurance comes with advantages and considerations. One very important area of Liability Coverage is Occurrence vs. Claims-Made Policies. But what are these policies, and how are they different?

Let's talk about the difference and explain them further.

What is an Occurrence Policy?

An occurrence policy covers claims arising from acts or incidents that occurred during the policy period, regardless of when the claim is made. For policies written on an occurrence basis, the timing of when the claim is made doesn’t matter; it could be years later. What matters is when the act or incident that gave rise to the claim that took place.

One of the biggest benefits of an Occurrence Policy is that they are straightforward; if an incident occurs during the time you were covered, you will still be covered even if the policy is no longer in effect.

So what's the downside? As the saying goes, "You get what you pay for." An Occurrence Policy gives you peace of mind and more coverage, but you'll pay more for it.

Remember, premiums are reflected in potential liability. As we discussed in our last blog, insurance is a trade-off for risk.

What is the Claims-Made Policy?

A claims-made policy covers claims made during the policy period. The event that gave rise to the claim could have happened at any time as long as the claim (or the written demand) was made during the policy period and reported to the insurance company as required by the policy.

It is extremely important to understand the basis on which your policy is written because of what’s referred to as “tail exposure” on claims-made policy. Tail exposure exists when a policy is not renewed or is canceled for any reason. This leaves the insured unprotected against future claims (for past acts/events). insurance-1

Put simply, once your policy expires and coverage ends, there is a gap in protection for claims made after your coverage ends, even if the incident occurred during the time you were covered. This is where "tail coverage" would come in.

You can also have retroactive dates, which define how far back in time a loss can occur for the policy to cover your claim. If a claim happens prior to your retroactive date, your policy won't provide benefits. Retroactive dates are a feature of claims-made professional liability policies, also called errors and omissions insurance or E&O.

Another coverage type of coverage is called tail coverage;

Tail coverage effectively fills the gap, ensuring that you remain protected for claims made after the policy has ended but relating to incidents that occurred during the policy period, this is also known as extended reporting.

Quick Tip: Tail coverage is especially important for doctors, lawyers, consultants and other similar professionals whose claims could arise years after the services were offered. In a situation like this, these professionals could be at risk if this claim is made after coverage has ended.

So, which is the best fit for you?

As we often say at Kastner Insurance Group, each policy should be carefully chosen based on the individual. We pride ourselves on our friendly and knowledgeable staff and the time we spend personally evaluating and comparing policies based on each individual's risk exposure and our recommendations.

We'd love to walk you through your options. Give us a call or click below to get a quote!