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What is an Occurrence Based Insurance Policy?

Dec 11, 2023

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Liability Insurance

What is an Occurrence Based Insurance Policy?
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What is an Occurrence Based Policy?

An Occurrence Based Insurance Policy is a form of liability insurance policy which provides coverage as long as the claim incident happened when the policy was active.

Even if the Occurrence Based Policy expires, the Insurance Policy will continue to provide coverage for claims which occur during the Policy Period. The only necessity is that claim event happened when the Occurrence Based Policy was active. This means that the Policy will cover claims which arise even many years after the Policy has expired.

Since Occurrence Based Liability Insurance Policy only requires the claim to occur when the Policy is active, the Policy does not require to have a Retroactive Date.

Generally, Product Liability Insurance Policy and CGL Insurance Policies are issued in the Occurrence Based Form many times.

Example of a Claim under Occurrence Based Insurance Policy

Consider an example of a Company which has an Occurrence Based CGL Insurance Policy with a Policy Period of 1st Jan 2019 to 31 December 2019. A customer of the company suffers a bodily injury because of a defective product on 1st March 2019 and a claim was reported on 10th March 2022. An Occurrence Based Policy will provide coverage since the Incident happened within the Policy Period.

Occurrence Based Policy is extremely beneficial to the Insured since liability claims can arise years after the Claim Incident has occurred. An Occurrence Based Policy will provide Insurance Coverage in such cases even if the Policy has expired because the Claim Incident occurred when the Policy was active.

What are the Pros and Cons of an Occurrence Based Policy?

Advantages of an Occurrence Based Policy

The biggest benefit of an Occurrence Based Policy is that it offers long-term Insurance Coverage. As long as the triggering event took place during the Policy Period, the Policy will provide coverage.

Disadvantages of an Occurrence Based Policy

The disadvantage of an Occurrence Based Policy is that the premium for an Occurrence Based Policy will be higher than a Claims Made Insurance Policy. This is understandable given that Occurrence Based Policy provides a longer term coverage without the need for renewing the Policy like a Claims Made Policy.

Which Policy is right for your business – Occurrence Based Policy or Claims Made Policy?

Choosing either an Occurrence Based Policy or a Claims Made Policy depends on the following factors:

  1. Potential of Long-Term Liabilities: If your business is such that you may face claims years after down the line, you should opt for an Occurrence Based Policy. Typically, food and pharma businesses opt for an Occurrence Based Policy.
  2. Affordability: If you can afford higher premiums, an Occurrence Based Policy offers longer term coverage. Claims Made Policies have lesser premiums than an Occurrence Based Policy.

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