Small business insurance’s liability coverages are classified into two categories- claims-made and occurrence-based. While most commercial liability coverages fall into occurrence type, errors and omissions policies are based on claims made. Let us discuss how claims-made and occurrence-based policies differ from each other and which one you should buy.
The Difference Between the Occurrence and Claims-Made Policy
Occurrence Policy
It covers only the claims (property damage or injury) that are caused by an event (occurrence) when the policy is active. You can file a claim even after your policy ends, but the event must have occurred during the policy period. Otherwise, you cannot get reimbursements.
Claims-Made Policy
It covers only the claims that are filed during the policy period or extended reporting period (if provided).
Also, a claims-made policy includes:
- Retroactive Dates
A claims-made policy may contain a retroactive date, meaning claims caused by events that occurred before the date will not be covered.
For example, your policy has a retroactive date of Feb 1, 2022, and you file a damage claim that occurred on December 20, 2020. In that case, your claim will not be covered, as the damage happened before the retroactive date. The retroactive date will remain the same every time you renew your coverage. Changing the date will reduce your coverage.
- Reporting Requirements
While most claims-made policies require claims to be filed during the policy period, some policies don’t stipulate a period for filing claims. They simply state claims to be made as soon as possible, and they are called pure claims-made policies.
Some other policies demand claims should be filed and reported to the provider when the policy is active, and such policies are called claims-made-and-reported policies.
Can I Switch to an Occurrence Policy from a Claims-Made Policy?
Yes, you can, but it may result in coverage gaps. If you switch to an occurrence policy, past claims (which occurred during your claims-made policy period) won’t be covered. The reason is, as per the occurrence policy, you can file a claim after the policy ends, but the event must have occurred during the policy period. On the other hand, your previous claims-made policy will not cover claims that are filed when the policy is inactive. So, you will be left uncovered if you file a claim for the past event.
Extended Reporting Period
You can use an extended reporting period (ERP) to close coverage gaps. An ERP can extend the time to file and report the claims to the insurer, but it will only cover the claims resulting from an event or injury that occurred when the policy is active.
Claims-Made or Occurrence – Which One Should You Buy?
Businesses buy claims-made policies only when they are necessary. For example, if they want employment practices liability coverage, they will buy a claims-made policy, as it is available only under it. Occurrence policies provide broader coverage, but they are more expensive than claims-made policies. As both policies have their own advantages and disadvantages, you should choose one that better suits your business needs and budget.
Cover Your Business with Action Insurance
If you are looking for small business insurance in Vancouver, WA, contact us today at Action Insurance Group. We will help you find the right policy for your business requirements.
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