General Lines Property and Casualty Insurance Practice Exam - Practice Test & Study Guide

Occurrence policies and claims-made policies are two distinct types of insurance coverage, and understanding their differences is key to grasping how insurance works in practice.

Occurrence policies provide coverage for incidents that occur during the policy period, regardless of when the claim is actually reported. This means that if an event happens while the policy is active, the policy will respond to the claim, even if the claim is filed years later, as long as it pertains to an incident covered by that policy. This characteristic offers long-term protection because it shields the insured from being exposed to liability claims that arise after the coverage period ends.

On the other hand, claims-made policies only provide coverage for claims that are made during the policy period. The incident must occur after the retroactive date set in the policy, and the claim must be reported within the policy period for it to be covered. This type of policy can potentially lead to gaps in coverage if the insured does not maintain continuous coverage.

Understanding these differences is vital for policyholders when selecting insurance, as the type of policy affects long-term liability and potential exposure to claims.