How does a claims-made policy differ from an occurrence policy?

A claims-made policy is characterized by its coverage for claims that are made during the policy period, provided that the event that gave rise to the claim occurred after the policy's retroactive date. This means that if an incident took place prior to the policy being issued—unless it falls under the retroactive date—the claim will not be covered even if it is reported while the policy is in effect.

This contrasts with an occurrence policy, which provides coverage for incidents that happen during the policy period, regardless of when the claim is reported. Consequently, occurrence policies can address claims made long after the policy has expired, as long as the incident occurred while the policy was active.

The distinction is crucial for policyholders because a claims-made policy's protection is strictly tied to the duration of the coverage provided, while occurrence policies provide more extended protection for events that might surface later. Understanding this difference helps policyholders choose the right type of insurance based on their needs and the nature of the risks they face.