How do occurrence-based and claims-made policies differ?

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As a small business owner, you know it’s important to understand how your insurance policy works. This includes understanding the difference between occurrence-based and claims-made policies.

An occurrence-based policy covers losses that happen during the policy period, even if it’s not active when you submit a claim.

[video: an illustrated header displays the text: "An occurrence-based policy protects your business from claims that don't happen right away, even if: Years pass before an incident becomes known; You switched to another policy or carrier, or canceled your insurance altogether"]

Let’s say you purchased a $1 million occurrence-based general liability policy. In year one, your business is sued for $1 million. When your policy is renewed at the beginning of year two, you’ll have another $1 million of coverage.

[video: an illustrated header displays the text: "Year 1: $1 million occurrence-based coverage, $1 million lawsuit; Year 2: $1 million occurrence-based coverage renewed"]

On the other hand, a claims-made policy provides benefits only if you file a claim after the policy start date. If you cancel your policy and then report a claim, it will not be covered.

[video: an illustrated header displays the text: "A claims-made policy protects your business from claims files during the policy period; This includes claims under previous claims-made policies with different carriers."]

In this case, if you had a $1 million claims-made policy and are sued for $1 million in your first year, you’d no longer have coverage. That is, unless you increase your policy limit in the second year.

[video: an illustrated header displays the text: "Year 1: $1 million claims-made coverage, $1 million lawsuit; Year 2: Uninsured, unless policy is increased (e.g., $2 million claims-made coverage)"]

Occurrence-based and claims-made policies are often found in specific types of insurance coverage. For example, your general liability, commercial auto, and umbrella liability insurance will be occurrence-based.

[video: an illustrated header displays the text: "Occurrence-based insurance policies: General liability, Commercial auto, Umbrella liability"]

Claims-made policies, on the other hand, will often be found in your directors and officers coverage and professional liability insurance, which is also referred to errors and omissions insurance.

[video: an illustrated header displays the text: "Claims-made insurance policies: Directors and officers (D&O), Professional liability, also called errors and omissions (E&O)"]

The biggest difference between claims-made and occurrence-based policies are the coverage limits. If you’re just starting out, you may want a lower cost claims-made policy.

[video: an illustrated header displays the text: "The type of policy and limits you choose all depends on your business size, industry, and risk level."]

[video: an illustrated header displays the text: "New business? You may want a budget friendly-claims policy."]

However, if you own a business with more assets at risk, it may be best to invest in an occurrence-based policy.

[video: an illustrated header displays the text: "Higher-risk? Several employees? An occurrence-based policy may be the best choice."]

Get the right coverage for your small business with Insureon today. Click the link to get started.

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