What Is the Difference Between Claims-Made and Occurrence Insurance Policies?

How are claims-made insurance policies different from occurrence policies?

There are many technical terms in the insurance industry that can be confusing for first-time business owners looking to get an insurance policy for their business. One of the things that can be difficult to understand is the difference between Claims-Made and Occurrence Insurance policies. In this blog, we'll explain what are Claims-Made and Occurrence Insurance policies, the difference between the two, and which kind of policy would be best for your unique business.

What is a Claims-Made Insurance Policy?

With a Claims-Made Insurance policy, you will only be eligible to make a claim if it is filed during your policy’s retroactive period. This means that your coverage will only kick in if the policy is active at that point in time. If you pause or cancel your policy and file a claim for an incident that has occurred in the time period when your policy was active, it won’t be covered by your insurance provider. In short, the incident has to happen in the retroactive period and your policy has to be active while filing a claim.

What is an Occurrence Insurance Policy?

On the other hand, an Occurrence Insurance policy will provide you with coverage as long as the policy was active when the incident occurred. It does not need to be active when you file a claim. This is helpful when incidents produce long-tail events – which are ramifications that don’t happen immediately after a service has been provided.

What's the Difference Between the Two?

Commercial General Liabiliy Insurance is usually offered as an Occurrence policy whereas coverages like Professional Liability Insurance are offered as a Claims-Made policy.

Another difference between the two is the coverage that you get. For an Occurrence Insurance policy, the coverage limits reset every time you renew it; but for a Claims-Made policy, the coverage is fixed. For example, if the coverage limit is $1 million, it will reset to $1 million every year in an Occurrence policy; but in a Claims-Made policy, if you file a claim and utilize the $1 million in year 1, you are left with nothing in year 2.

Should I get a Claims-Made or an Occurrence Insurance Policy?

Occurrence Insurance Policies may be easier to navigate as you can file a claim as long as the policy was active when the incident occurred. They also provide you with ample coverage as the coverage limit resets every year. The downside is that Occurrence Policies are more expensive. If you value peace of mind and own a business that can have potential long-term ramifications, an Occurrence Policy may be the way to go.

Claims-Made Insurance Policies are a bit more complex and have limited coverage. But they're also cheaper than Occurrence Policies and they still provide coverage to protect your business - just in a different way. If you're just starting your business and want to cut costs, a Claims-Made Insurance Policy might make more sense for you.

Check out a similar question we often get, "What is the Difference Between Commercial General Liability and Professional Liability (E&O)?"

Every business is different and has a unique set of needs. With Foxquilt, we can carefully analyze your needs to find an insurance solution that works for you. Our team of insurance experts can examine your unique business and provide you with a tailored quote suited to your business. Get started on your online quote today.