Editor’s Note: We’re on a mission to decode confusing insurance terms so that you can make an informed decision about your business insurance coverage. In this article, we’re taking a closer look at claims-made vs. occurrence policies.
Two terms that are important to understand before you purchase liability insurance are claims-made insurance and occurrence policies.
Continue reading for more details on:
- What is a claims-made policy?
- What is an occurrence policy?
- What does claims-made vs. occurrence coverage mean for your business?
Understanding claims-made vs. occurrence policies
The first thing to note about claims-made vs. occurrence policies is that both are a form of liability insurance, which can include general liability coverage, professional liability, and commercial auto insurance
For example, we offer general liability insurance as an occurrence-based policy, while professional liability is offered with claims-made coverage.
Here’s how we define both types of coverage:
An occurrence policy covers claims that happened during the period in which your insurance was active.
If your small business insurance policy starts in January 2020 with coverage for a full calendar year, any claim on work done within that period is covered. In layman's terms: You're covered for damages while you are paying for the policy.
For example, if a plumber worked on some minor sink repairs in June 2020, but a month after the policy is canceled, the homeowner claims the repairs are faulty and caused significant damage due to a leak. Expenses related to the incident could be covered with the 2020 occurrence-based policy up to the policy limit.
Claims-made coverage is an industry term that means you’ll have financial protections for incidents during the active policy period and a retroactive start date. Still, the claim must be made during the coverage period.
This means that if you purchase insurance in January 2020 for the full calendar year, but have a retroactive start date of October 2019, your business is covered for any claims filed in those last few months of 2019. However, any claim for coverage must be made before the policy ends.
Using our plumber example from the previous section, with claims-made insurance, the business would be covered if a homeowner made a claim in 2020 about a job performed in November of 2019 as long as the claim is reported to the insurance company before the policy ends.
Note: Some claims-made policies might have more specific requirements for reporting a claim, such as within 60 days of an incident involving your professional liability coverage.
Coverage can also include a time to report a claim after the policy expires. This is called the “extended reporting period” or “tail coverage” — two more industry terms that you are likely to encounter as you consider coverage options.
How are claims-made vs. occurrence policies different for your business
When deciding on the insurance that’s best for your business, be sure to confirm if it's occurrence-based vs. claims-made coverage.
General liability policies are typically occurrence-based policies, which makes them easy to own and manage. Even if you cancel or switch insurance, there is no limit on when a claim can be filed on past work.
Professional liability insurance is usually a claims-made policy. This is because professional liability covers professional mistakes, and it can be challenging to pinpoint the exact date the incident involved with the claim occurred.
Keep in mind that it’s important to be mindful of potential coverage gaps with claims-made policies if you want to cancel or adjust coverage, change carriers or switch to an occurrence-based policy.
We know all of this can be a bit confusing. Our licensed insurance advisors are standing by to help you if you have questions about your coverage options.
How Next Insurance helps business owners
Next Insurance is 100% dedicated to small business owners and self-employed professionals. We utilize technology to deliver online business insurance and digital certificates of insurance in a matter of minutes.
We offer a variety of small business insurance options, including general liability insurance, commercial auto insurance and workers’ compensation, which are all occurrence-based policies. Our professional liability insurance is a claims-made based policy.
Get an instant quote online today to explore options for your business.