What is an occurrence-based insurance policy?

Selecting essential insurance for your small business can be confusing and overwhelming. 

UFG is here to help by discussing different types of policies, including an occurrence-based policy and how it is different from a claims-made policy. 

An occurrence-based policy example

To start, picture this: One of your employees is up on a ladder fixing something and they fall. Thankfully there are no broken bones and they get right back up, stating that they're okay. Managers check them out—they seem just fine. A couple of months later, they leave the company to pursue another job opportunity.

Two years pass and you get a notice saying that the former employee is suing you due to injuries sustained during that fall. While at the time the employee was okay, however, the injuries developed after they left your company. Yet it's been two years since the incident happened! Don't worry, this is where an occurrence-based insurance policy comes in.

An occurrence-based insurance policy covers incidents that happened while you had it, regardless of when you actually file the claim. You'll always be covered as long as the policy was active when the incident originally occurred. 

Okay small business owners, now you can let out that deep breath.

Occurrence-based vs. claims-made

One of the biggest differences between these two policies is that a claims-made policy will only potentially cover claims created while the policy was active. While an occurrence-based policy will cover your business for acts that happened while you had the policy, regardless of when the claim occurs. With our scenario above, two years had passed by and the business may even have a completely new policy and insurer. They can breathe easier knowing that because of the occurrence-based policy they had, any claim made against them will typically be covered. 

How much does an occurrence-based insurance policy cost?

Another difference is that occurrence-based policies tend to cost more than claims-made policies, but this is usually because there's no time limit on them. They can also be easier to manage. If you do end up switching insurers like our small business owner friend did above, you won't have to worry about purchasing an extended reporting period (aka tail coverage) to keep yourself protected. More to come on that later. 

While there are differences between the two policies, it all comes down to what's best for you and for your business. For example, if you've just opened your doors, it might be best to go for the less pricey claims-made option. But if you're a business that's well established, has a bit more cash flow and more assets, it may be best to consider an occurrence-based policy. 

As always, we're here to help. If you have any questions or are looking for an agent that has your best interests in mind, don't hesitate to reach out.