Claims-made policies provide coverage for any claims that are submitted during the period the policy is in force. As long as you continue to pay premiums on the policy and any renewals, the coverage will be there for you.
However, once you stop paying the premiums (maybe because you have switched insurance companies, for example), the coverage ceases for any claim not yet known but that happened during the coverage period.
This means that you take the risk of an unknown claim, maybe for a sprinkler system you installed a few years ago, being made and not being covered because the claim was made outside the coverage period.
If you wanted to continue coverage after the original coverage period, you would need to purchase “tail coverage” (also called an extended reporting endorsement). This can be expensive but would extend out the claims reporting period after the policy period has ended.
This type of policy protects you now and in the future for any claims that get submitted for any time period that was once covered. As you might suspect, this coverage is more expensive (as much as 35 to 50% extra) than a claims made policy.
One other thing to remember about this is that the coverage is only for the amount you had under the policy during the time period the claim occurred. That may be lower than your current policy limits.
Even so, many experts recommend the occurrence form for most businesses.
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