Q. After working for several years as an employee, I recently headed out on my own and began shopping around for liability insurance. Most policies offer “occurrence” coverage, but one company offers a “claims made” policy that provides similar coverage for less money. What’s the difference between the two types of policies?
A. Scott Smith, president of Stanford Insurance in Salem, Ore., and a former builder, responds: Both policies cover liability loss in the same way during the coverage term; the big difference lies in what happens after your coverage term expires. A claims-made policy only pays claims presented to the insurer during the term of the policy, or within a specific term after its expiration. As long as you keep this type of policy in force, you’re covered; as soon as the policy expires or is cancelled, your coverage ends. For additional cost, some companies offer 30-day, 60-day, or 90-day tail coverage to continue coverage for a short time after the policy has expired, but this won’t help you if there’s a lawsuit two years later.
Not many companies write claims-made policies, which are designed to keep the price of insurance down by limiting an insurance company’s liability. Even the ones that do will often decide, after one or two terms, that you qualify as a good risk and will write an occurrence-based policy, which costs slightly more but pays claims for incidents that occur during the policy term even if they’re filed many years later.
