If you ever asked your insurance agent on what is Professional Indemnity insurance, you might have heard options like,
"would you like to go with Claims Made Basis or Occurrence Basis?"
If you have not then you might want to read on or ask for 2nd opinion...
Occurrence Basis Insurance
In Occurrence Basis Insurance, the policy covers any incident that occurs during the policy period, regardless of when the claim is made. The key feature of this type of insurance is that it provides coverage for events that happen while the policy is in force, irrespective of when the claim is filed.
Pros:
Pros | Details |
Simplicity | Occurrence Basis insurance offers straightforward coverage, as claims are based solely on when the incident occurred. |
Long-term protection | Provides long-term coverage for incidents that happened during the policy period, even if the policy is no longer in effect. |
Ease of reporting | Policyholders can file claims at any time after the incident, without worrying about policy expiration. |
Cons:
Cons | Details |
Potentially higher premiums | Premiums for Occurrence Basis policies may be higher, as they need to account for potential claims filed in the future for past incidents. |
Complex claims handling | Claims may be more complex to settle, as they can involve multiple policy periods and coverage terms. |
Claims Made Basis Insurance
Claims Made Basis Insurance provides coverage for claims that are made and reported during the policy period, regardless of when the incident actually occurred. This type of insurance focuses on when the claim is made rather than when the incident occurred.
Pros:
Pros | Details |
Lower initial premiums | Claims Made Basis policies often have lower initial premiums since they only cover claims made during the policy period. |
Simpler claims handling | Claims are generally simpler to process, as they are based on when the claim is made, rather than the timing of the incident. |
Tailored coverage | Allows for more precise coverage adjustments, as policyholders can add endorsements or extend coverage for specific periods as needed. |
Cons:
Cons | Details |
Limited coverage for past incidents | Coverage is limited to claims made during the policy period, leaving past incidents uninsured unless retroactive coverage is purchased. |
Potential coverage gaps | Policyholders may experience gaps in coverage if they switch insurers or fail to renew their policy promptly. |
Premiums may increase over time | Premiums for Claims Made Basis policies may increase over time, especially if claims are made frequently or if retroactive coverage is added. |
Key Differences
Aspect | Occurrence Basis Insurance | Claims Made Basis Insurance |
Coverage Timing | Covers incidents that occur during the policy period, regardless of when claims are made. | Covers claims made and reported during the policy period, regardless of when the incidents occurred. |
Premiums | May be higher initially due to the potential for future claims. | Often lower initially but may increase over time, especially if claims are frequent. |
Claims Handling | Claims may be more complex, involving multiple policy periods. | Claims are generally simpler, as they are based on when the claim is made. |
Coverage Continuity | Provides long-term coverage for incidents even after the policy expires. | Coverage ends when the policy expires unless extended or renewed. |
In conclusion, choosing between Occurrence Basis and Claims Made Basis insurance depends on various factors such as the nature of risks, budget constraints, and long-term coverage needs. While Occurrence Basis offers simplicity and long-term protection, Claims Made Basis provides flexibility and potentially lower initial premiums. Understanding the nuances of each type of insurance is crucial for making informed decisions to safeguard against potential risks effectively.
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