Choosing Better Insurance

Insurance companies mostly offer business insurance as occurrence or claims-made policies. Below is an overview of these different insurance policies.

Occurrence

An occurrence policy only compensates you for losses you suffer while your policy is valid. However, you can make the claims even if the policy is no longer valid. The insurance company is concerned with the occurrence, not the claim's date.

Consider an example where you buy an occurrence business policy that covers third-party claims. You cancel the policy after one year, and an aggrieved client files a claim against you one and a half years later. Your occurrence policy will compensate the customer as long as you can prove the customer's loss occurred during the year your policy was valid.

An occurrence policy is valuable for businesses that deal with services or products that can cause delayed injuries. For example, some products cause cancer years after their use. If you sell such a product, an occurrence policy may protect you from cancer claims even if the policy is no longer valid when the affected person makes their claim.

Note that occurrence policies have coverage limits that reset at the beginning of every coverage year. For example, if you have a two-million-dollar limit, the insurance company will compensate your claims up to two million dollars annually. If you exhaust your limit this year, you can only make further claims if you purchase another policy the next year.

Claims-Made

For this policy, the insurance company only pays for claims you submit when your policy is still valid. In this case, the insurance company is more concerned with when you submit your claim and not when the incident that triggers the claim occurred. Thus, you cannot claim damages if you cancel coverage, fail to remit your premiums, or lose your coverage in other legitimate ways.

Consider a case where your business has a claims-made policy valid for a year from company A. You decide to switch to company B after the year. However, you discover a loss that occurred during the year you had coverage from company A. In this case, company A cannot compensate your claim since your contract has ended.

A huge advantage of claims-made coverage is that the coverage limit is valid for the policy's duration; the limit doesn't reset as with occurrence policies. For example, if you file a huge claim that exhausts your policy limit this year, you cannot file another claim next year even if your policy remains valid. You can only file subsequent claims if you increase the policy limit.

For more information on business insurance, contact a professional near you.