When it comes to insurance coverage, the details of knowing exactly what you're buying can get a little fuzzy. But for psychologists, knowing the difference between claims-made and occurrence coverage is essential so that you can make the best decision about your desired coverage and how it fits into your budget.
One main point to remember is that nearly all liability policies fall into two categories: claims-made or occurrence. So, what's the difference and, more importantly, what type of professional liability insurance policy should you buy?
What is a Claims-Made Policy?
A claims-made policy covers incidents (claims) that happen after coverage becomes effective. The claim, however, must be reported while your policy is active (also referred to as “in force”). Claims filed after your coverage ends may be covered by purchasing an Extended Reporting Period (also referred to as an ERP or "Tail"). An ERP is a feature you can add to your claims-made professional liability insurance policy. This is important to know as it allows you to report claims even after your policy expires.
Example: Dr. Insured purchased a claims-made policy in 2016 and continued coverage through 2018, then cancels. They do not buy an ERP (tail coverage) on the policy's original limits. In 2019, Dr. Insured is sued for an incident that occurred in 2017. Since the claims-made policy is no longer in effect and they did not purchase tail coverage, Dr. Insured is the liable party—meaning they are obligated to pay for damages, as their former insurance carrier does not cover it.
Tail or Nose
With a claims-made policy, you must maintain continuous coverage if you retire, stop practicing, or change carriers. You can do this by securing a tail (or ERP) or purchasing prior acts coverage. A tail extends the time to report claims beyond the last day of your policy; it doesn’t extend coverage into the future.
There are two types of tails: unlimited and limited. Unlimited tail extends the time to report claims indefinitely. Limited tail is available for shorter periods of time. You must secure a tail within 90 days of terminating a claims-made policy.
The other option for continuous coverage with a claims-made policy is to secure a “nose,” also known as “prior acts” coverage from your new carrier. They will then assume liability for any new claims made from your previous years of practice, back to your prior carrier’s retroactive date, or the earliest date of your claims-made coverage. The premium with the new carrier is based on your retroactive date, so there is no additional cost.
Did you know that The Trust offers complimentary unrestricted tail upon retirement, death or disability? This additional coverage normally costs 175% of your last year's premium, but we include it for free with every claims-made policy. Another benefit is that changes to your current coverage, or changes to the policy limits, also apply to past years.
Claims-made policy premiums are initially a lot less expensive than occurrence policies, but the rate continues to increase gradually over the next seven years. At that point, the premium stabilizes. Other providers' rates level off at five years, making ours the wise financial choice.
What is an Occurrence Policy?
An occurrence policy provides coverage for incidents that happened or occurred during the policy year, regardless of when the claim is reported to the carrier. It does not matter if the policy is active when the claim is reported; it only matters if the policy was active when the alleged incident occurred.
From a pricing standpoint, occurrence policies are more expensive because they provide coverage for incidents that occurred during the policy year. The occurrence policy also provides a separate limit for each year protection is purchased and has the advantage of permanency. You don't have to renew the policy to maintain coverage for the year you were insured, and you do not need to purchase tail coverage.
Example: Dr. Insured purchased an occurrence policy in 2016 but switched to a claims-made policy in 2021. Dr. Insured got sued in 2022 for an incident that occurred in 2018. In this instance, Dr. Insured is still covered by their original occurrence policy because it was active at the time of the incident.
- A claims-made policy only covers incidents that happen and are reported within the policy's timeframe, unless a "tail" is purchased.
- An occurrence policy has lifetime coverage for the incidents that occur during a policy period, regardless of when the claim is reported.
While other companies are limited in what they can offer, The Trust provides both options. Now that you have a better understanding of the two types of insurance policies, contact our insurance representatives at (877) 637-9700, so we can help guide you on which choice is best for you and your career. The unexpected can happen, but The Trust has got you covered.