Claims-Made vs. Occurrence Policies: What Happens When You Switch or Retire?
Learning goal: Tell a claims-made policy from an occurrence policy, and know what to ask about retroactive dates and tail coverage before you switch insurers, close the business or retire.
Short answer
An occurrence policy covers incidents that happen while it's in force, even if the claim is filed years later. A claims-made policy generally pays only if it's in force both when the incident happened and when the claim is made. Most professional liability policies are claims-made, so switching or retiring needs a plan for later claims.
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The Fuller Picture
General liability is often written on an occurrence basis; professional liability (errors and omissions) is usually claims-made. The difference shows up when coverage ends: with claims-made, a claim filed after you cancel may have no policy to answer it. Insurers handle this with a retroactive date, which carries earlier work into a new policy, and an extended reporting period ("tail"), which you can buy to report claims after a policy ends.
Key Takeaways
- Triple-I: "Most professional liability insurance policies are 'claims-made,'" meaning the policy must be in effect both when the event took place and when a lawsuit is filed.
- An occurrence policy covers events during the coverage period, "even if the suit is filed after the policy lapses."
- Triple-I suggests that if you change careers or retire, you may want to buy an occurrence policy, which covers events from its coverage period.
- When switching claims-made insurers, keep the same retroactive date so past work stays covered.
- Ask about the cost and length of an extended reporting period (tail) before you cancel or retire.
Real-World Example
Grace
Grace, a bookkeeper, has a claims-made E&O policy for six years, then closes her practice and cancels it. A year later a former client sues over an error from her fourth year. The incident happened while she was insured, but no policy is in force now, so her claims-made policy doesn't respond. If she had bought an extended reporting period when she closed, the claim could have been reported under it.
Common Mistakes
- Canceling a claims-made policy at retirement without asking about tail coverage.
- Accepting a new claims-made policy with a later retroactive date, which leaves past work uncovered.
- Assuming a business owners policy includes professional liability. It generally doesn't.
- Waiting to report a possible claim. Claims-made policies often require prompt notice.
Interactive Exercise
Check Your Policy Before You Switch or Retire
Find these details on each liability policy you have, especially professional liability.
Tick each step as you do it. Your checklist is saved in this browser.
Knowledge Check
Question: A consultant's claims-made policy ended last year. A client now sues over work done while the policy was active. What's most likely?
Recommended Insurpedia Tools
- Coverage Builder: Answer a few questions about your home, vehicles, family and work, and see insurance topics worth researching for your situation, each linked to a plain-English explanation. It doesn’t tell you what to buy.
Related Insurance Terms
Related Scenarios
Questions to explore next
Questions readers often ask next about this topic:
- Is my professional liability policy claims-made or occurrence?
- What's my retroactive date, and why does it matter?
- How much does tail coverage cost, and how long does it last?
- What happens to my coverage if I switch insurers?
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The factual claims on this page were checked against these sources. Rules and figures change, so check the source itself if you need to confirm the current version.
- iii.orgProfessional liability insurance · Insurance Information Institute (Triple-I)
Educational information, not advice: This lesson is for general education only, not legal, financial, or insurance advice. Actual coverage, discounts, and requirements depend on your policy’s wording, your insurer, and the laws of your state. Confirm specifics with your own insurer or a licensed agent before making a decision. Insurpedia does not sell insurance and does not recommend specific insurers. The definitions of claims-made and occurrence policies are from the Insurance Information Institute's professional liability page. Retroactive dates, extended reporting periods and notice rules vary by policy and insurer. Educational information, not advice on your policy.