Occurrence vs. Claims-Made Policy Differences

Choosing the right business insurance involves more than just picking a provider. You must understand how your policy works to ensure you have the proper protection.

Weighing the differences between occurrence and claims-made policy structures and selecting the right one can significantly impact your business’s financial health. Knowing the distinction helps you manage risk effectively.

What Is an Occurrence Policy?

An occurrence policy covers incidents that happen during the policy period, no matter when you file the claim. This structure provides long-term certainty. For example, if a customer slips and falls on your property in December but files a lawsuit the following July, your occurrence policy from December would cover the claim, even if you have since switched providers.

This type of policy simplifies long-term liability management. Businesses in fields with a long “tail,” where injuries or damages may not surface for years, often choose professional liability insurance for healthcare providers. An occurrence policy like this provides peace of mind that past events are covered.

What Is a Claims-Made Policy?

A claims-made policy covers incidents that both occur and are reported while the policy is in effect. If you cancel your policy, you lose coverage for any past incidents that have not yet been reported. This policy type makes continuous coverage essential.

To address this gap, insurers offer “tail coverage,” or an extended reporting period (ERP). This add-on allows you to report claims for past incidents after the policy has ended.

Claims-made policies often have lower initial premiums that increase over time as the potential for claims grows. Businesses looking for a more cost-effective solution upfront may find this policy type appealing, especially if their work has a low risk of delayed claims.

Key Factors for Your Decision

When choosing between occurrence and claims-made policies, consider these factors:

• Your industry: Does your work carry risks that might lead to claims years later? Construction and medical fields often face this “long-tail” risk.
• Your budget: Claims-made policies can offer lower initial costs, which helps new businesses manage cash flow.
• Your future plans: If you plan to sell your business or retire, you will need to account for future claims. An occurrence policy simplifies this, while a claims-made policy will likely require you to purchase tail coverage.

Making an Informed Choice

Understanding the fundamental differences between occurrence and claims-made policies empowers you to protect your business properly. Each structure offers distinct advantages depending on your operational risks, financial strategy, and long-term goals.

The right decision secures your company’s future against unexpected events. Consulting with the experts at Baxter & Associates can help you evaluate these factors and select a policy that provides the best protection for your unique needs.