Claims-made policies

Definition

Claims-made policies are a type of liability insurance that provides coverage for claims made against the insured during the policy period, regardless of when the incident that caused the claim occurred. This means that if a claim is filed after the policy has expired, it will not be covered unless the insured has a tail coverage option. Understanding claims-made policies is crucial for assessing liability exposure and ensuring appropriate coverage terms and conditions are in place.

5 Must Know Facts For Your Next Test

1. Claims-made policies often include a retroactive date, which sets the start point for coverage and is critical for determining which incidents can be claimed.
2. These policies are commonly used in professions with high liability risks, such as healthcare and legal services, because they provide more control over claims reporting.
3. If a claims-made policy is canceled, any claims made after cancellation will not be covered unless tail coverage is purchased.
4. The premium for claims-made policies may decrease over time as the insured gains more experience and the likelihood of future claims decreases.
5. Understanding the specific terms and conditions of a claims-made policy, including any exclusions and limitations, is essential to ensure adequate risk management.

Review Questions

• How do claims-made policies differ from occurrence policies in terms of liability coverage?
  • Claims-made policies differ from occurrence policies primarily in how they handle the timing of claims. With claims-made policies, coverage is provided only if a claim is made during the active policy period, regardless of when the incident occurred. In contrast, occurrence policies cover incidents that take place during the policy period, even if the claim is filed after the policy has expired. This distinction can significantly impact an insured's liability exposure and needs.
• Discuss the implications of purchasing tail coverage when ending a claims-made policy.
  • Purchasing tail coverage when ending a claims-made policy is crucial because it extends coverage for claims made after the policy's expiration for incidents that occurred while the policy was active. Without tail coverage, any new claims arising from past incidents would not be covered, exposing the insured to significant financial risk. Tail coverage ensures continuity of protection and safeguards against potential unforeseen liabilities that may surface post-termination.
• Evaluate how understanding claims-made policies affects decision-making in risk management for professionals with high liability exposure.
  • Understanding claims-made policies is vital for professionals in high-risk fields because it directly influences their risk management strategies. Knowing how these policies work allows them to assess their exposure to past incidents and make informed decisions about their insurance needs, including whether to purchase tail coverage or select an appropriate retroactive date. Additionally, this knowledge helps them evaluate potential financial implications associated with claims and choose policies that align with their specific liability concerns.

Related terms

Occurrence Policy: A type of liability insurance that covers claims for incidents that occur during the policy period, regardless of when the claim is reported.

Tail Coverage: An extension of a claims-made policy that provides coverage for claims made after the policy has expired for incidents that occurred during the policy period.

Retroactive Date: The date in a claims-made policy that determines the beginning of coverage for incidents that may lead to future claims; only claims arising after this date are covered.