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Claims-made policy

A claims-made policy is a type of insurance that only covers claims while it's active. If a client lets their claims-made policy lapse before reporting an incident, the insurer won't recognize the claim.

What is a claims-made policy?

Unlike an occurrence-based policy, a claims-made policy only covers claims that the client makes while the policy is active. If the client cancels their policy or lets coverage lapse, their insurer will stop hearing claims, even claims that involve incidents that occurred while the claims-made policy was in effect.

While a claims-made policy is active, it covers some claims that occurrence-based policies do not, such as claims involving incidents that occurred while the client had a different claims-made policy with another insurer.

What kinds of policies are claims-made?

Errors and omissions (also known as professional liability) policies, as well as directors and officers insurance policies, are typically claims-made policies.

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What are the disadvantages of claims-made liability insurance?

Many forms of insurance have both a per-incident limit (a limit for a single claim) and an aggregate limit (a limit for the entire policy period). While the aggregate limit of an occurrence-based policy resets every year, the aggregate limit of a claims-made policy never resets. This means the aggregate limit is typically lower over the lifetime of the policy.

The coverage provided by claims-made policies ends when the policy lapses. Claims-made policies don’t cover claims made after the policy expires, even if the claim involves an incident that took place while the policy was in effect. If you plan on canceling your claims-made policy, add an extended reporting period or tail coverage to your policy to avoid gaps in coverage.

Claims-made premiums often increase each year the policy is in effect to reflect the increased risk of the client filing a retroactive claim.

What are the advantages of claims-made insurance?

Claims-made policies are usually more affordable than occurrence-based policies since their aggregate limits are fixed over the lifetime of the policy.

Claims-made policies pay for claims over incidents that happened long ago, even if a client had a different policy with another company. If you have a gap in your past coverage, you can get continuous coverage by adding a retroactive date to your claims-made policy with prior acts coverage (also known as nose coverage).

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