Claims Made vs. Occurrence Policy: What is the Difference? – Owners of real estate businesses, landscaping services, general contracting firms, and other organizations frequently obtain commercial general liability insurance coverage. They get this coverage to shield against unexpected incidents. This insurance covers occurrence and claims-made as two forms of liability coverage.
The majority of people are curious about the distinctions between occurrence and claims-made insurance policies. Occurrence and claims-made insurance policies provide lifelong coverage for events within a policy period, with both having advantages and disadvantages. One is good for one situation while the other is good for another. They may be able to fill each other’s place, but they do not render the same services. Before getting any of these liability insurance policies, you need to first understand how they are different from each other.
What are claims-made insurance policies?
This type of insurance policy covers claims submitted and reported to your insurer throughout the policy’s term. Claims-made insurance policies mandate that the claim and alleged incident occur within the specified time range, unlike occurrence insurance plans. This liability insurance overage policy has a retroactive date, meaning claims filed before this date are not covered, and claims filed during the policy period are not covered.
What are occurrence insurance policies?
Regardless of the kind of claim made, occurrence insurance policies cover occurrences that take place during the policy period. Unlike claims-made policies, this insurance covers any and every occurrence triggered by an event, instead of the timing of claim reports. This policy has no retroactive date, meaning it provides simplicity and long-term clarity concerning the events covered. The occurrence policy offers coverage even after policy cancellation, provided the event occurred within the initial policy’s set time frame.
How Do I Choose Between Claims-Made and Occurrence Policy?
It looks easy to just select either of the two to cover your business, but in reality, it doesn’t work that way. Some policies offer options of choosing an occurrence policy or claims-made policy, while most time, they don’t. General liability insurance policies are occurrence-based, while management liability plans are claims-based. Certain policies, like media liability, can be classified as occurrence or claims-made. However, to determine which of these policies is best for you, you need to consider the following:
Premium Cost
Generally, for the first five years of your insurance coverage, claims-made policies are less expensive than occurrence policies. However, with time these prices get even over time as your business faces more exposure.
The Coverage Amount
The occurrence policy covers the policy year’s time frame, while the claims-made policy covers the current level of coverage. Due to economic conditions and inflation, this can result in a large difference in coverage at the time of the incident.
The Type of Business You Run
If you have a business where you feel that your current business transactions may lead to higher chances of claims in the future. An event insurance policy would be better than a claims-made insurance policy.
Which is Better: Claims-Made vs. Occurrence Policy?
Claims-made and occurrence are distinct methods used in business, with the choice depending on the specific needs of the business. Using the following guide, you can find what is best for your business needs.
- Occurrence Policies Are Easier to Own: Changing insurers allows you to continue filing claims under your occurrence insurance policy for work-related issues.
- Claims-Made Policies Have Lower Initial Premiums: This can reveal issues when you default on your premiums or switch to an occurrence policy.
- Occurrence Policies Offer More Peace of Mind: Renewal of your policy ensures a new bundle limit, eliminating the worry of large claims consuming your limits.
- You Handle The Risk of Consuming Your Claims-Made Policy Limits: The policyholder may quickly exceed their coverage limit due to the large claims on their current policy.
This shows the differences between these two insurance policies and which is best for your business. If your business needs a limited insurance policy, probably for a short period, a claims insurance policy may work out fine.
