What is the difference between "occurrence" and "claims-made" policies?

Occurrence policies and claims-made policies are fundamentally different in how they cover liabilities associated with incidents that might lead to a claim.

Occurrence policies provide coverage for incidents that occur during the policy period, regardless of when the claim is actually filed. This means that if an event happens while the policy is active, the insurer will cover claims related to that event even if the claim is reported after the policy has expired. This provides long-term security for the insured, as they are protected against future claims that stem from occurrences while they were insured.

In contrast, claims-made policies offer coverage only for claims that are reported during the policy period. This type of policy necessitates that both the incident occurs and the claim is made within the timeframe of the policy. If a claim is reported after the policy has ended, it would not be covered, regardless of when the incident occurred. This creates a different risk profile for both the insurer and the insured.

Understanding this distinction is key, as it affects how businesses manage their risk and plan their insurance needs. For instance, businesses might favor occurrence policies for their more comprehensive coverage of past incidents, while claims-made policies might be chosen for particular situations due to potentially lower premiums given the more limited risk coverage.