What Is An Occurrence Policy And How It Works

What Is an Occurrence Policy?

An incident policy covers claims for injuries sustained during the term of the insurance policy. Under these sorts of arrangements, the insured party has the right to seek compensation for damages that happened while the policy was valid, even if several years have passed and the insurance agreement is no longer in place.

Understanding Occurrence Policies

Most liability insurance coverage fall into two categories: A claim or event. The latter protects against financial loss for incidents that occurred during the insurance, regardless of when they were flagged. Thus, you can file a claim after the contract expires if you can prove its cause or triggering event occurred throughout the insurance period.

Occurrence policies cover incidents that may cause damage years later. A person exposed to dangerous chemicals may not get sick for a long time. Typically, occurrence coverage covers the employer and former employee for life. Even after terminating insurance or switching providers, the policyholder is protected for years until injuries or damages are apparent.

Occurrence Policies vs. Claims-Made

For claims-made insurance to pay out, the policy must be active. An extended reporting period (ERP) or “tail coverage” is required to receive reimbursement if you discontinue protection and request it.

Business insurance policies are usually claims-made or occurrence. The claims-made policy covers claims when reported, but the occurrence policy covers events when they happen.

Claims-made policies cover business risks including financial statement errors and omissions. They also protect corporations from employee claims of wrongful termination, sexual harassment, and discrimination. Employment practices liability (EPLI) may include directors and officers.

The mid-1960s saw the first usage of claims-made phrasing, and the early to mid-1970s saw irregular use. Except for most professional and executive liability exposures, claims-made policies dominate.

Advantages and Disadvantages of an Occurrence Policy

The main benefit of an occurrence policy is long-term protection. As long as coverage was in place when the incident occurred, you can claim years later. Fixed occurrence policy costs are another benefit. Premiums rarely rise unless the insured’s risk profile changes.

As expected, occurrence plans cost higher than claims-made ones. They’re also sometimes scarce. A corporation taking out such an insurance may misjudge the damages it could incur later on, forcing it to pay a portion of its own purse.