By: Jenn Negley, Vice President, Risk Strategies Company
When it comes to liability insurance for professionals such as doctors, choosing the right type of policy is crucial. Two of the most common forms of coverage for professionals, such as doctors, lawyers, and business owners, are claims made and occurrence policies. While they both offer liability protection, the way coverage is triggered and how long it lasts differs significantly. Understanding these differences is crucial for individuals and organizations to avoid costly coverage gaps and ensure they are adequately protected.
What is a Claims-Made Policy?
A claims-made policy provides coverage only if the claim is made during the policy period and the incident occurred on or after the policy’s retroactive date. The retroactive date is usually the date the insured first purchased a claims made policy and continuously maintained it. For example, suppose a doctor has a claims-made malpractice policy that starts on January 1, 2022, with a retroactive date of January 1, 2020. A patient filed a lawsuit on March 1, 2023, for something that happened in 2021. Because the policy is still active when the claim is made and the incident occurred after the retroactive date, the lawsuit is covered.
Benefits of Claims-Made Policies:
Lower initial premiums:
These policies are often cheaper in the early years because the insurer is only covering claims reported during the policy period, not the full history of a professional’s work.
Customizable tail coverage:
If you retire, take a break from your career, or switch insurers, tail coverage can extend your protection beyond the end of the policy. This helps cover claims that arise later from work you did while the policy was active.
Adaptability:
Claims-made policies are a good fit for professionals whose situations may change, such as a growing practice or changing insurers. However, continuity is key to avoiding coverage lapses.
Drawbacks of Claims-Made Policies:
Tail coverage can be expensive:
If the policyholder retires or switches carriers, they may need to buy tail coverage, which can cost up to 200% of the final year’s premium.
Coverage gaps: If there’s a lapse in policy renewal or the retroactive date changes, claims may be denied.
Complexity:
The nuances of retroactive dates and tail coverage can confuse policyholders unfamiliar with insurance jargon.
What is an Occurrence Policy?
An occurrence policy provides coverage for incidents that occur during the policy period, regardless of when the claim is filed. This means even if a claim is filed years after the policy expires, the insurer will still cover it if the incident occurred during the time the policy was active. For example, if a contractor has an occurrence policy from 2018 to 2020, and a claim is filed in 2024 for a job completed in 2019, the claim will still be covered.
Benefits of Occurrence Policies:
Long-term peace of mind:
Once the policy is in place, the policyholder is protected for incidents that occurred during the coverage period, even if the claim arises years later.
No need for tail coverage:
This makes occurrence policies especially attractive for professionals who don’t want to worry about coverage after retiring or changing jobs.
Simplicity:
Easier to understand and manage over time, since there’s no concern over retroactive dates or claim reporting timelines.
Drawbacks of Occurrence Policies:
Higher premiums:
These policies usually cost more upfront than claims made policies, reflecting the broader protection they offer.
Limited availability:
Some insurers offer only claims-made policies for specific professions or high-risk fields.
Harder to budget long-term:
Because the insurer assumes longterm liability, the policy’s true cost can be challenging to estimate or predict.
How Do You Decide Which Policy Is Right for You?
Choosing between claims made and occurrence policies often depends on your financial situation, career stage, and risk preferences.
• Early career professionals may prefer claims-made policies for their lower initial cost.
• Established professionals or those nearing retirement might lean toward occurrence policies for their lasting protection.
• Those who switch jobs or insurers frequently must carefully manage claims made coverage to avoid gaps.
Both policy types have their place, and the best choice depends on your specific situation. Consulting with an experienced insurance broker can help ensure your coverage aligns with your needs, career plans, and financial goals.
For more information, please contact Jenn Negley, Vice President, Risk Strategies, at 267-251-2233 or JNegley@RiskStrategies.com.