Understanding Professional Liability Insurance: The Differences Between Occurrence Policy and Claims-Made Policy
The world of professional liability insurance can be complex and confusing, especially when it comes to understanding the difference between an occurrence policy and a claims-made policy. These two types of policies are the most common in the realm of professional liability insurance, and it’s critical for professionals to understand their distinctions to ensure the right coverage.
An occurrence policy provides coverage for incidents that happen during the active policy period, regardless of when the claim is filed. This means if the incident occurred while the policy was in effect, the policyholder would be covered, even if the claim is made years later after the policy has expired.
For example, consider a doctor who had an occurrence policy that was active from 2021-2022. If a patient treated in 2022 files a malpractice claim in 2023 after the doctor’s policy has expired, the doctor would still be covered because the incident happened during the policy period.
On the other hand, a claims-made policy only covers claims that are made during the active policy period. This means both the incident and the claim need to occur while the policy is in effect.
To illustrate this, imagine a lawyer who had a claims-made policy active from 2021-2022. If a client files a malpractice claim in 2023 for advice given in 2022, the lawyer would not be covered because the claim was made after the policy expired.
The main advantage of an occurrence policy is the lifelong coverage for incidents that occur during the policy period. This is particularly valuable in professions where claims may be made several years after the service was provided.
On the flip side, claims-made policies are generally less expensive than occurrence policies because they offer a narrower coverage window. However, they often allow for the purchase of an extended reporting period or “tail” coverage, which can provide protection for claims made after the policy ends.
In conclusion, the choice between an occurrence policy and a claims-made policy should be guided by the professional’s unique circumstances and risk tolerance. The former offers long-term peace of mind, but at a higher cost, while the latter offers cost-effectiveness with a more limited coverage window. Always consult with an insurance professional to understand the best option for your specific situation.
