When evaluating an insurance policy, one of the most important things to consider is whether or not you are being covered for claims made verses the occurrence of a claim during the policy period. And while this is generally a bigger discussion on business policies, it absolutely applies to home insurance policies as well. Why is this a big deal and how can it affect you?
First Off, The Difference
When looking at these terms, it's important to notice the subtle difference in words that makes a huge difference. Occurrence means that whatever the potential claim event is, it has to occur during a specified time period. That time period would be the policy period. While we are in the middle of storm season, it is easy to think about the hail storms that explode in the afternoon and roll through damaging everything in their path during the evening or weekend. If that storm occurs during your policy period, the company is obligated to pay the claim. Even if you don't report it until after the claim. This becomes vitally important if you are in the process changing companies and a storm blows up your roof at the end and you can't report the claim until after that change over happens.
Claims made is going to fall into the other category. The claimant, whether that is you with your home or someone making a claim against your business, must make that claim while your policy is in force and for a predefined time following the expiration of the policy. So thinking back to that hail storm we referenced previously, if you didn't notice the damage to your roof for a few weeks or months and make the claim prior to that expiration period, the claims made policy would not cover you.
So Why Do I Really Care?
Let's evaluate a couple of scenarios to see where this could be damaging to you.
Scenario 1: The same hail storm from above. If you are on a claims made basis and that storm is on the final day of your policy and you are out of town. When you return, you were not even aware of the storm and did not notice the damage. While cleaning gutters later in the year, you noticed the damage and wanted to report it. However, your new policy is based on occurrence rather than claims made and the post policy period with your previous policy has expired. Guess what happens since the occurrence was prior to your new policy and you didn't report the claim until after your policy period had expired? You could potentially be left holding the bag. If you have an occurrence based policy, you will have plenty of time to report. This scenario may not be likely, but it can give you an idea of the impact.
Scenario 2: Let's evaluate a medical malpractice claim on a claims made policy to get a better feel for the ramifications. If you are a pediatrician who is working with a new born baby, there are things that you will confront that potentially will not manifest as a symptom until the child is fully grown. That means your work today, could potentially not be completely evaluated for another 17 years or more. If your malpractice coverage is on a claims made basis, and the claim is not surfaced for 17 years, guess who will be liable for taking care of that situation? If you didn't purchase what is known as tail coverage, you will be on the hook for that lawsuit including defense costs. This creates an expensive problem if you choose a claims made policy.
The good news is that different companies give you options to tackle this issue. Since tail coverage can be expensive, you can evaluate which scenario makes the most sense for you. This tiny detail can have a massive effect on your premium and exposure to potential risk. Speaking with our commercial team can help you understand how this specifically impacts your family, business, or both.