There are a lot of insurance companies, but almost any of them can provide two different types of coverage: claims made and occurrence policies. While both of them have their own set of benefits and drawbacks, in this article, we will focus on both claims made and occurrence policies so you can make a better decision when choosing the best insurance option for your specific needs.
As long as the incident takes place during the term of the occurrence policy, the coverage will be available no matter what time it occurs. It means that the occurrence policies have lifetime coverage.
However, when we talk about claims made policies, they only cover incidents that happened within the policy’s period of coverage. This can change if you purchase a ‘tail’ extension to your insurance.
Here’s what you should know about the difference between claims made vs occurrence policies.
Claims Made vs Occurrence Policy
Having an occurrence policy means that a person is under protection from any kind of incident that occurs during the policy period. This also means that you don’t have to have a current occurrence at the point of filing the suit.
Let’s say you went to the insurance company and made a purchase of a policy that took effect in 2019. After some time, you decided that you didn’t want it anymore, and you let the policy lapse in 2021. Somewhere in the future, for example, in 2025, you decide to sue the company for an incident that happened back in 2020. Regardless of the type of coverage you have now, your claim will be covered because the incident happened during the policy period.
Now let’s have another example. Anna is a businesswoman who runs her own company. Back in 2012, she bought an occurrence policy, but she changed her coverage in 2018. She wanted to change her insurance company because she had a better offer elsewhere. Anna receives a letter that she is being sued for something that happened in 2015. Luckily for Anna, she will be covered, even though she changed her insurance company. The reason for this is because the incident happened at a time when the occurrence policy was active.
On the other hand, claims made policy works differently. For example, you will not have coverage when you use this type of coverage and report an incident that happened three years ago, but the policy is already canceled.
This means that even if the incident occurred during the time when the policy was in force, the claim would be denied. A claims made policy can cover an incident only if it’s reported during a period of time specified in the policy.
For instance, a business owner has a claims made policy that he bought in 2015. He had it for a year and in 2016 he decided to cancel it. At this point, he didn’t have any extensions, like tail coverage. Later on, in 2017, the business owner gets sued for an incident, but his claims-made policy is not in effect at this point. This means that he is responsible for paying for the damage from the incident.
With claims made policy, you only have the coverage while you have the insurance. If you cancel it and you don’t make a purchase of tail coverage, you will not have the insurance anymore.
However, if you purchase the extension to the policy known as tail coverage, you can have the protection even if the incident happened when the claims made policy was already canceled.
What is Tail Coverage?
Tail coverage is also known as Extended Reporting Period or ERP. The name comes from the option of purchasing this coverage following the termination of a claims made policy. If you purchase the tail extension, you will be able to report incidents that have occurred after your insurance coverage ended.
For example, Anna purchased a claims made policy in 2015 but decided to cancel it in 2018 and purchase the tail coverage. This extension will allow her to report incidents that occurred during the period from 2015 to 2018 even after policy cancellation.
Prior Acts Coverage vs Tail Coverage
A prior act is the official start date of your first active renewal claims made policy. This means that you are covered for any incident that happened on or after the prior act date, also known as a retroactive date. The date will stay the same and it won’t change upon renewal.
Here’s a simple example that will bring prior acts coverage and tail coverage closer. You have a claims made policy at one insurance company. You have been their customer from 2015 to 2018. For some reason, instead of renewing your contract, you decided to change the insurance house. When you choose a new insurance house, you can ask for prior acts coverage. This means that the current company will issue a new policy that provides coverage for the period back in 2015 as well.
So, the main difference is that the tail coverage is purchased as an extension after your claims made policy has expired. On the other hand, prior acts coverage is the date when you renew your claims made policy at the same or different insurance house.
What Is the Difference Between a Prior Acts Date and a Retroactive Date?
There’s no difference between retroactive date and prior acts date. You can use both terms as you wish because they are interchangeable. When you purchase a claims made policy, your coverage applies to claims that occur within a specified period of time.
In short, the purpose of retroactive date or prior acts date is to allow users to have coverage for certain incidents that happened after the prior acts date came into force.
Claims Made vs Occurrence Malpractice Insurance: Which One is Better?
Both of these insurance policies have benefits as well as drawbacks. It is generally considered that the right policy plan for you relies on the current and future circumstances.
It is possible to issue both claims made and occurrence malpractice policies from the same insurance group. This means that they have the same discounts and limits, grant the same coverages, as well as provide defense beyond policies limits.
Here are some things you want to take into consideration:
- The claims-made policy has an advantage because of its flexibility due to prior acts. So, you may increase your policy limits or purchase new coverage that was unavailable when you first bought the policy.
- Portability as an advantage of a claims made policy. This means that you can change insurers and still have the coverage.
- When we talk about occurrence policy, its biggest benefit is longevity. When you buy the occurrence policy you will have coverage for the rest of your life. Hence, you do not need to renew it or purchase a tail extension.
Finally, when we compare claims made vs occurrence policies, there are a few things that you should know before making the final decision.
Firstly, both of them have positives and negative sides. Secondly, each insurance company offers both types of insurance coverage.
Depending on your business needs and preferences, it is always advisable that you shop around and compare insurance policies so you can choose the insurance that suits you the best.
Want help deciding between claims made and occurrence policies? Connect with an agent today.
Are you a business owner? If you liked this article, you might also be interested in finding out more about Business Insurance and different ways you can protect your most valuable assets!