Written by: Lindsey Lessard, Director of Client Services, Broker Representative for Alternative Balance
When it comes to protecting your business with insurance, understanding the type of policy you have is just as important as having coverage in the first place. If you’ve ever come across the terms Claims-made and Occurrence when searching through insurance options and felt a little confused—don’t worry, you’re not alone! These are the two most common policy types, and knowing how they work can make a big difference when it comes time to file a claim.
Let’s break it down in a way that makes sense, so you can confidently choose the best coverage for your business.
What is a Claims-made Policy?
A Claims-made policy provides coverage if a request for damages (a “claim”) is given to the insured during the active policy period only if the actual incident causing the injury or damage happened on or after the policy’s retroactive date (we’ll explain this in a sec).
Claims made policies are most commonly found in professional liability and errors and omissions (E&O) insurance.
Here’s how it works:
- Coverage is Activated: Coverage is activated when a claim (meaning a demand for compensation for injury or damage) is made and reported during the active policy period.
- Verify Retroactive Date: This is the earliest date an incident can have occurred and still be covered. If your coverage lapses and you restart it later, your retroactive date resets, potentially leaving gaps in coverage.
Example:
Let’s say your professional liability policy has a retroactive date of January 1, 2022. A client files a lawsuit in 2024 for a mistake you made in 2021—unfortunately, you wouldn’t be covered because the mistake was made before the policy’s retroactive date of January 1, 2022.
But, if the mistake happened in 2023, and your policy is still active, then the policy would respond because the mistake happened after the retroactive date AND the policy has not expired!
- Check for Tail Coverage: If you decide to cancel or not renew your policy, you can purchase tail coverage (also called an extended reporting period), which allows you to report claims even after your policy ends—as long as the incident occurred before the policy expired.
Example:
Let’s say you purchase a claims-made policy with a retroactive date of January 1, 2022. If an incident occurs in February 2023 but the claim is filed in June 2024 after the policy has lapsed, you would need tail coverage to remain protected.
What is a Per Occurrence Policy?
A Per Occurrence policy provides coverage based on when the incident happened—not when the claim was filed. This means even if someone files a claim years after the fact, the policy would still respond as long as the incident took place while your policy was active. This type of policy is commonly found in general liability and property insurance policies.
Here’s how it works:
- Coverage is Activated: Coverage is activated by the occurrence of an incident during the policy period.
- No Retroactive Date: There is no retroactive date to consider for occurrence coverage, because any covered incident that occurs during an active policy term is eligible for coverage, even if the claim is reported years later.
- Long-tail Claims: Because claims can be filed long after an incident occurs, these policies often protect against what are known as “long-tail” risks, such as latent property damage or personal injury claims that surface years later.
Example:
If you have a Per Occurrence policy effective from January 1, 2022, to December 31, 2022, and an incident occurs in July 2022, the policy will respond to the claim even if the claim for damages isn’t submitted until 2025.
Key Differences
Key Differences Between Claims-made & Per Occurrence Policies
Coverage Activation
- Claims-made – When the claim is filed & reported
- Per Occurrence – When the incident occurred
Retroactive Date
- Claims-made – Required—coverage starts from that date onward (be sure to renew on time!)
- Per Occurrence – Not required—covers any incident during the policy period
Tail Coverage
- Claims-made – Needed to extend the ability to report claims after the policy ends
- Per Occurrence – Not needed—coverage is based on the incident date
What Does Alternative Balance Offer?
At Alternative Balance, we offer both General Liability and Professional Liability insurance, and they follow different coverage forms:
- General Liability – Per Occurrence policy to cover incidents that happen during your policy period, even if the claim is filed later.
- Professional Liability – Claims-made policy to cover claims made during your active policy period and within the retroactive date.
If you decide to not renew your Professional Liability policy, then tail coverage is available for purchase.
Final Thoughts
Both Claims-made and per Occurrence policies have their strengths. While Claims-made policies offer flexibility for professional liability scenarios, Per Occurrence policies provide enduring peace of mind for physical risks. Consulting with an experienced insurance broker can help you evaluate your unique needs and choose the policy type that offers the best protection for your business. The Alternative Balance approach helps protect your business for the scenarios most common in your industry. We’ve taken the time to work with our brokers and insurance companies to build a policy designed for you.
If you have additional questions, please email us at [email protected] or give us a ring at (800) 871-3848 Monday-Friday 9am-5pm EST.
Want more insurance tips and information? Check out our other monthly insurance blog posts! New posts are uploaded during the first week of every month. If there are any specific topics that you’d like us to touch on, please shoot us an email at [email protected]!
