Claims-Made vs. Occurrence Policies: What's the Difference and Which Is Right for You?
When you're choosing insurance for your job or business, one of the most important things to decide is what type of policy you need. Two common options are "claims-made" and "occurrence" policies. If those terms sound confusing, don’t worry—you’re not alone! This guide will break down the differences in simple terms and help you figure out which policy might be a better fit for you.
What’s a Claims-Made Policy?
Think of a claims-made policy like a "current events" plan. It only covers you if both the incident and the claim happen while the policy is active. For example, if something goes wrong while you’re covered, but the claim doesn’t come in until after your policy ends, you won’t be covered unless you buy "extra protection", known as "tail coverage".
Key Points:
- Timing Matters: Coverage only kicks in if the incident and the claim both happen while the policy is still active.
- Retroactive Date: Some claims-made policies include a start date that tells you how far back incidents can be covered.
- Tail Coverage: This is an add-on that lets you extend coverage for claims that come in after the policy ends.
Pros:
- Usually cheaper at first.
- You can customize it with add-ons like tail coverage.
Cons:
- You have to keep renewing it to stay covered for past incidents.
- Adding tail coverage can get expensive.
What’s an Occurrence Policy?
An occurrence policy is more like a "forever" plan. It covers any incident that happens while your policy is active, even if the claim comes in years after your policy ends. If you switch or cancel the policy, you’re still covered for incidents that happened when it was active.
Key Points:
- Event-Based Coverage: It’s all about when the incident happened, not when the claim was filed.
- Long-Term Protection: Even if you stop the policy, it still covers past incidents that happened while it was active.
Pros:
- Gives long-term peace of mind since you're covered for incidents that happened during the policy period, no matter when the claim comes in.
- Easier to manage since you don’t need tail coverage.
Cons:
- Costs more upfront.
- Might be harder to find in certain industries.
Comparing the Two Policies
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Claims-Made
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Occurrence
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If the incident and claim both happen while the policy is active.
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If the incident happened during the active policy period, no matter when the claim is made.
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Yes, tail coverage is needed after the policy ends for past incidents.
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No extra coverage needed for past incidents.
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Typically more expensive.
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You need tail coverage for protection after the policy ends.
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Automatically covers incidents during the policy term, even years later.
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Examples to Make This Clearer
For Healthcare Professionals: Imagine you’re a doctor who had a claims-made policy while treating a patient in 2020. If that patient decides to sue you in 2024, you’re only covered if you still have that policy or bought tail coverage. With an occurrence policy, you’d be covered for that 2020 treatment no matter when the patient files the claim.
For Small Business Owners: Let’s say you own a landscaping business. If an accident happened in 2022 when your occurrence policy was active, and a claim comes up in 2025, you’re still protected. With a claims-made policy, you’d need to have kept your policy active or have tail coverage to handle the 2025 claim.
Which Policy Is Right for You?
Choosing the right policy comes down to a few things:
-Budget: If you’re trying to save money, a claims-made policy might work for now. Just remember you’ll need tail coverage if you stop the policy or switch to another one.
- Long-Term Security: If you don’t want to worry about claims coming in years after an incident, an occurrence policy is the way to go. It’s more expensive, but it could save you headaches later.
- Industry Norms: Some industries prefer one type over the other. For example, professional liability insurance for lawyers or doctors often comes as claims-made policies.
The Bottom Line
Understanding the difference between claims-made and occurrence policies can make a big difference in how protected you are—and how much you pay. A *claims-made policy* is great for flexibility and lower initial costs but needs ongoing renewals and possibly tail coverage for full protection. An *occurrence policy* costs more upfront but offers simpler, long-term peace of mind.
Before choosing, talk to an insurance advisor to figure out which one matches your needs. Taking the time to make the right choice now can save you stress and money down the line.