Occurrence-Based Insurance Policy covers incidents that may lead to injuries or damages that surface years after the incident itself. For example, if a policyholder is exposed to harmful chemicals, it could take many years before they show signs of illness. With an occurrence-based policy, these illnesses will be covered regardless of how long they take to manifest, even if the policy is no longer active.
An occurrence-based policy protects the policyholder from events that take place during the policy’s active period, even if the policyholder no longer has coverage at the time of a claim. This allows them to seek compensation for damages that occurred during the policy’s term, even if the policy has since lapsed.
How Does It Work?
Insurance companies provide general liability insurance, commercial auto insurance, and various other policies as occurrence-based coverage. These policies allow claims to be filed as long as the incident took place while the policy was active. And even if the policy is no longer in force and several years have passed. Occurrence-based policies are designed to offer financial protection for policyholders against incidents that result in damages. Or injuries to others, even years after the event occurred.
Advantages and Disadvantages
A key advantage of an occurrence-based policy is its long-term financial protection. As long as the policy was in effect when the incident occurred, policyholders can file claims later, even years afterward. Another benefit is that the policy’s costs are fixed, with premiums only increasing if the policyholder’s risk profile changes.
However, a downside of this insurance is that it is more expensive than claims-made policies and can be harder to find. There’s also a significant risk that the company buying this coverage might underestimate the future risks or damages that could arise.
What Should I Know About Occurrence-Based Insurance Policy?
Due to its numerous benefits, some workers may be more inclined to accept a job that offers this type of insurance when considering multiple employment options. Additionally, occurrence-based insurance differs from claims-made policies, which only cover claims filed while the policy is active. This policy covers claims both during and after the policy’s term provided the incident occurred while the policy was in force. There is no time limit for filing claims with this type of insurance.
When Should I Be Aware of an Occurrence-Based Insurance Policy?
An individual who works for a harmful company should be aware of this insurance policy. For instance, a person who works in a chemical company can be exposed to risks connected to chemicals. And may not develop illnesses now but lead to severe health issues in the future. Occurrence-based policies would offer coverage for medical expenses for those health issues.
Occurrence-Based Insurance Policy vs. Claims-Made: What is the Difference?
A claims-made policy only pays for claims that are filed while the policy is still active. After the policy has been canceled or ended, any claims filed will not be covered by this insurance policy.
Business insurance policies often come with claims-made or occurrence policies. Just as claims made only make coverage for claims filed during the policy lifespan. Occurrence-based policies offer coverage when the event occurs. Claims-made policies cover risks such as errors and omissions in financial statements connected to business operations.
Occurrence-Based or Claims-Made Policy, Which is Better?
There is no single advantage to having either of these policies. You tend to pay more on coverage if you select an occurrence-based policy. Stay reminded that insurance companies list out what is and what is not covered on each policy. Using that, you can determine which is and is not best for you. For instance, business liability coverage is only listed on the occurrence policy. Occurrence policies and claims-made policies do not offer the same coverage.
Do I need tail coverage if I have an occurrence policy?
No, if you have an occurrence policy, you do not require tail coverage. This is because, even if you file a claim after your policy has expired, you will still be covered if the incident happened within the policy period. Therefore, tail coverage is not required.
Final Thought
If you have coverage that could cover you from losses during a policy term, despite the period the claim was made, occurrence-based insurance is a suitable option. Also, you can get coverage against some incidents even if your policy is ineffective. Events like chemical spillage are considered long-tail incidents since it might be many years before the victim notices the cause of the injury or other related ha