Understanding General Liability Insurance: Claims-Made vs. Occurrence Policies
General liability insurance is a must-have for businesses, as it’s a vital component of a comprehensive risk management plan. But with two general liability insurance options, claims-made and occurrence policies, how do you know which is the right fit for your company?
This blog will explain each option to help you determine which is best for your business and desired level of protection.
Claims-Made Policies
Claims-made policies are tied to when a claim is filed, not when the incident occurred. Let’s look at a quick example.
Imagine a client accusing your business of making a mistake in the work you did for them a year ago, which results in a financial loss for their company. But they’ve waited until now to file a claim. If your claims-made policy is active, you’re covered, even if it wasn’t active a year ago when the alleged mistake was made.
This type of coverage requires vigilance regarding policy periods. You’ll want to pay close attention to when your policy expires and renew it promptly to avoid any lapses. Many policies offer “tail coverage,” which can help keep your business protected for a set period after you cancel your claims-made policy or choose not to renew. Tail coverage does come at an additional cost, but for many business owners, the added peace of mind is well worth it.
Occurrence Policies
Occurrence-based policies are tied to when the event occurred, not when the claim is filed, even if the claim surfaces years later. Let’s look at an example of an occurrence policy.
You have an active occurrence policy for your busy restaurant. One day, a patron slips and falls, injuring themselves. Two years later, they filed a claim. Because your policy was active when they fell, you’re covered.
This type of policy is popular, as it helps shield businesses from future uncertainties tied to past events. Be sure to pay close attention to this policy during a transition or merger, as moves such as these may create gaps in protection.
Which Is Right For You?
Several factors influence which type of general liability policy you’ll choose, including:
- Budget
- Risk profile
- Business type
- Regulatory requirements
- Stakeholder expectations
Generally speaking, many businesses that have stable operations and low-risk profiles, like the simplicity and perpetual coverage of an occurrence-based policy. Those with high-risk profiles prone to claims may be more drawn to the structured timeline and flexibility of claims-made policies.
No matter which you choose, periodic policy reviews with your insurance provider can help ensure you’re always covered. Staying on top of policy renewals and knowing your coverage limits will help avoid unpleasant surprises in the future, so be sure to ask questions when shopping for coverage.
Turn to Hoffman Hanono for a Custom General Liability Insurance Solution
Hoffman Hanono has been helping San Diego-area businesses stay protected with commercial insurance since 1959, and we understand just how unique every company is. Ditch the one-size-fits-all approach and get a tailored general liability insurance policy that safeguards your company and offers peace of mind. Get a quote today!