What is an Occurrence Policy?

Occurrence policies cover losses that occur during the time the policy is active, regardless of when the claim is filed. These types of contracts give the insured party the right to request compensation for damages incurred within the policy's period of validity, even if several years have passed and the contract is no longer active. An occurrence policy provides coverage long after the policy has expired, which is a major advantage. Moreover, while claims-made policy aggregate limits do not reset, occurrence policy aggregate limits reset every year.

Key Takeaways

• Occurrence policies provide coverage from incidents that happen during the policy’s benefit period, regardless of when the claim is reported.
• When it comes to incidents that may result in injury or property damage years after they happen, an occurrence policy is a popular choice.
• The main difference between claims-made policies and occurrence policies is that claims-made provide benefits only if a claim is initially filed while the policy is active.
• Aggregate limits reset annually in occurrence policies.

More on Occurrence Policies

With occurrence policies, coverage may last long after the policy has expired. In other words, it is possible to receive financial protection on claims that occurred even years after the policy period, so long as the insured can show that the claim event took place during the benefit period of the policy. As a general rule, occurrence policies will cover the insured for life, regardless of how long has passed since the policy was terminated.

Occurrence policies have been designed to cater to events that may lead to damages after the fact.  For instance, imagine an accident involving a spill of hazardous chemicals. One may not expect to see the dangerous effects of the chemicals until years after the spill took place.

Occurrence Policy Advantages and Disadvantages

Advantages:

• Long-term protection: A claim can be filed on an incident several years after it occurred, as long as coverage was in place when it happened. By doing so, occurrence policies accommodate claims that may not produce lawsuits right away.
• Fixed costs: Typically, premiums stay the same price throughout and aren't raised unless the insured's risk profile changes.
• Increased coverage: The aggregate limit for occurrence policies resets every year, unlike claims-made policies. This results in more coverage than other types of policies.

Disadvantages:

• High costs: Understandably so, occurrence policies are generally more expensive than claims-made policies. 
• Underestimating risks: Taking out such a policy might lead a company to underestimate the amount of damages it will face later on, forcing them to pay out of pocket for losses in the future.

Bottom Line

Generally, when choosing an insurance policy, there are three main factors to consider: the type of coverage you need, the time frame you want protected, and the overall cost of coverage. Choosing the right insurance policy begins with understanding the key characteristics of occurrence policies and claims-made policies, but the differences between these two policies are a bit complicated. Get in touch with an insurance attorney as soon as possible if you need assistance with your insurance policy.