What's the Difference Between Occurrence & Claims-Made Insurance?

Owners of real estate businesses, general contracting firms, landscaping companies, and other organizations often purchase commercial general liability (CGL) insurance to cover themselves during an unforeseen incident.

However, not all coverage is created equal.

There are two types of liability coverage—occurrence and claims-made—and each come with their own advantages and disadvantages.

This guide break down both so you can ensure coverage when you need it and build safer business connections.

Occurrence Policy Versus Claims-Made Policy

An occurrence policy protects businesses from any covered incident that happens during the policy period, regardless of when a claim is reported. 

This type of insurance will provide coverage even if the claim is filed after cancellation, as long as the incident occurred within the time frame set by the initial policy.

Example: Bob the business owner purchased an occurrence policy in 2016 but switched to a new form of coverage in 2021. Bob got sued in 2023 for an incident that occurred in 2018. In this case, Bob is still covered by his original occurrence policy because it was active at the time of the incident.

A claims-made policy covers claims that occur—and are reported—within the specific time period set by the policy. 

This means if a policy is canceled or a premium isn't paid, any claim that comes through will not be covered—even if the incident occurred during the policy period.

Example: Bob the businessman purchased claims-made insurance in 2016 and continued coverage through 2018, then cancels it. He does not purchase any extension—or, tail coverage—to extend its original limits. In 2019, Bob is sued for an incident that occurred in 2017. Since the claims-made policy is no longer in effect and he did not purchase tail coverage, Bob is the liable party—meaning he is obligated to pay for damages, as his former insurance carrier does not cover it.

What Is Tail Coverage?

Also known as an extended reporting period (ERP), tail coverage is an additive option that extends the limits of claims-made coverage indefinitely, and becomes available only after a policy has been terminated. 

This endorsement protects policyholders from past incidents, and covers claims filed after expiration or cancellation.

Example: Bob the businessman purchased claims-made insurance in 2016 and continued coverage through 2018, then cancels it. He then adds on tail coverage. In 2019, Bob is sued for an incident that occurred in 2017. Since he was continuously covered at the time of the incident and purchased extended coverage, his old insurance carrier is still liable to pay for the suit, even though the original policy is no longer in effect. 

When Do I Need Tail Coverage?

Consider adding tail coverage if you have a claims-made policy, as it protects you from past incidents or claims that occurred after expiration or cancellation.

However, you don’t need tail coverage if you have an occurrence policy, since you’re already covered for claims that occurred during the policy period.

Key Takeaways

1. An occurrence policy provides lifetime coverage for incidents that occur during a policy period, regardless of when the claim is reported.
2. A claims-made policy only covers those that happen and are reported within the policy's timeframe, unless tail coverage is purchased.

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