DEFINITION of 'Occurrence Policy'

An insurance policy that will cover claims made for injuries sustained during the life of the policy, even if the claim is filed after the policy has been canceled. An occurrence is an event that can result in the filing of an insurance claim.

BREAKING DOWN 'Occurrence Policy'

Insurance companies can provide two types of liability insurance coverage: occurrence and claims-made. Occurrence coverage covers incidents that happened while the policy was in effect, even if the claim was filed after the policyholder changed insurance companies later on. For example, an individual exposed to hazardous chemicals may only see the effects years later. Occurrence coverage will cover the company even if the injured individual files a claim after retiring.

Insurers typically place a cap on the total amount of financial coverage offered through a policy. One form of cap limits the amount of coverage offered each year, but lets the coverage limit reset each year. For example, a company that purchases 5 years worth of occurrence coverage with an annual cap of $1 million will allow the policyholder to have up to $5 million in total coverage.

Claims-made coverage is more commonly found than occurrence coverage. This type of coverage will accept claims from injuries that occur during the policy period, but also requires the claim to be filed during the same period. If the policy is no longer in effect when the claim is filed the claim will not be covered. This type of coverage typically does not provide the same type of cap reset that is a feature of occurrence coverage. Instead, the claims-made policy places a maximum coverage allowed over the life of the policy.

The features of claims-made coverage typically results in lower premiums than occurrence coverage. This is primarily because the insurer does not face the possibility of claims being filed long after it stops receiving premiums from the policyholder.

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