Understanding the Difference Between Claims Made and Occurrence-Based Insurance Policies
Introduction: Insurance is an important concept that helps protect individuals and businesses from financial losses. Liability insurance, in particular, covers the costs if someone gets hurt or property gets damaged because of our actions. Today, we’ll learn about two types of liability insurance policies: Claims Made and Occurrence Based. Let’s explore their differences and how they work!
Claims Made Insurance Policies: Claims Made policies offer coverage for claims that are made and reported during the policy period. Here’s what you need to know:
Coverage Trigger: For Claims Made policies, the coverage kicks in when a claim is made against the insured person or business and reported to the insurance company within the policy period. Both the claim and its reporting must happen within the policy period for the coverage to apply.
Retroactive Date: These policies often have a retroactive date, which is like a starting point. Claims Made policies cover claims that arise from incidents happening after the retroactive date. Claims arising from incidents before the retroactive date are usually not covered.
Extended Reporting Period (ERP) or Tail Coverage: When a Claims Made policy ends or is not renewed, an option may be available to purchase an Extended Reporting Period or Tail Coverage. This extends the time in which claims can be reported beyond the policy period. It allows claims to be reported for incidents that occurred during the policy period but were reported after it expired.
Occurrence-Based Insurance Policies: Occurrence Based policies offer coverage for claims arising from incidents that occur during the policy period, regardless of when the claim is made. Here’s what you need to know:
Coverage Trigger: For Occurrence Based policies, the coverage is triggered by the occurrence of an incident during the policy period, no matter when the claim is made. As long as the incident happened within the policy period, the coverage applies, even if the claim is filed years later.
No Retroactive Date: Unlike Claims Made policies, Occurrence Based policies do not have a retroactive date. They cover incidents that happen at any time during the policy period, regardless of when the policy was first purchased.
No Need for Tail Coverage: Since Occurrence Based policies cover claims based on when the incident occurred, there is no need for extended reporting periods or tail coverage when the policy is canceled or not renewed. The coverage remains in place for incidents that happened during the policy period, even if the claim is made after the policy expires.
Conclusion: Understanding the difference between Claims Made and Occurrence Based insurance policies is important when considering liability coverage. Claims Made policies rely on when claims are made and reported, while Occurrence Based policies focus on when the incidents happen. Both types of policies have their benefits and considerations. It’s essential to carefully review and choose the right policy based on individual needs and circumstances. Remember, insurance is there to provide peace of mind and protect against unexpected events!