Know Your Policy

Are you like many business owners who have been buying business insurance year after year yet you have a limited understanding what it is you are buying and why.  As your risk adviser I see it as my job to educate you so you truly understand how we work together to protect your business and family.  As a best practice, you should understand what you are buying because insurance is a vital strategy in financing your risk and protecting your balance sheet.  Below is the start to helping you understand the terminology you find on insurance declaration page or a proposal.  For illustration purposes, so it looks familiar to you, I show insurance limits as an example.  The limits we suggest for you and your business will vary depending your risk management needs.

On a proposal and in the insurance policy you see a section like this:

Coverage Basis: Occurrence
Each Occurrence $1,000,000
Personal and Advertising Injury $1,000,000
General Aggregate $2,000,000
Products and Completed Operations Aggregate Limit $2,000,000
Medical Expense $10,000
Damage to Rented Premises Each Occurrence $100,000

Today I will explain the meaning of coverage basis and the difference between Per Occurrence and Claims Made Basis.

Coverage Basis: 
First what does coverage basis mean?  Coverage basis is part of what determines which claims are eligible to be paid during the contract period of the insurance.  Types of coverage basis options are Occurrence and Claims Made.

Occurrence:
A policy covering claims that arise out of damage or injury that took place during the policy period, regardless of when claims are made.  Most commercial general liability (CGL) insurance is written on an occurrence form. Contrast with Claims-made coverage trigger; Claims-made policy.

Clams Made:
The date of the claim report is deemed to be the date of the loss event. Claims reported during the term of the insurance agreement are therefore covered, regardless of when they occurred.  A claims-made agreement is said to “cut off the tail” on liability business by not covering claims reported after the term of the insurance agreement—unless extended by special agreement.

Each Occurrence $1,000,000
In liability insurance, the maximum amount the insurer will pay for all claims resulting from a single occurrence, no matter how many people are injured, how much property is damaged, or how many different claimants may make claims. In the example above, the maximum amount paid out by the insurance company for any one incident or occurrence is $1 million. 

It is very important to note that this is the limit the insurance company will pay out; it is not, however, the limit of your liability.  For example, assume you have a $1,000,000 limit per occurrence on your auto policy and cause a car accident with several vehicles and people involved and the claims total $1.5 million.  The insurance company could pay $1 million (less your deductible) and you are responsible to pay the remaining $500,000 to the people making the claims.  That is an eye opener for most people and a good reason to consider an excess or umbrella policy.