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Insurance: Comparing a Claims-Made vs. Occurrence Policy. What’s Best for Your Business?

For small business owners, it’s important to understand the difference between occurrence vs. claims-made insurance before you purchase a policy.  So, we’ve prepared a brief Q&A to ensure you are educated and informed.

How do the two policies differ?
With an occurrence-based policy, you’ll be protected as long as the loss happened while your policy was active. As long as you were insured when the treatment occurred, you can file a claim with your insurer. Occurrence policies accommodate “long-tail” events – situations that don’t produce lawsuits or claims right away.  With a claims-made policy, you are only covered for claims made during the policy period. 

What is tail coverage?
Some insurers provide the option to purchase an extended-reporting period (ERP) or tail coverage for some claims-made policies. An ERP gives you the ability to file claims even though you have no current insurance. However, an ERP only applies to losses that happened during the prior policy period and for which you now need to file a claim. New treatments are not covered.

Is one policy type better than the other?
Occurrence-based policies are simpler to own.When you switch insurers, you’ll still have the ability to file claims on your prior work.  This provides business owners with peace of mind and much better protection. Claims-made policies usually have lower initial premiums, but pose problems when you cancel them or switch to an occurrence-based policy.  Also, with claims-made policies, the premium tends to increase each year.

Which policy type costs more?
Typically for the first five years of coverage, claims-made policies are discounted and tend to be less expensive than occurrence policies.  However, this price begins to level out as times goes on and your business faces more exposures. Eventually, the cost of claims made policies become comparable to occurrence policies.  One cost difference with a claims-made policy is the need to buy tail coverage when the policy is terminated.

How Allied Can Help
If you have questions about insurance for your spa, salon, or medspa, Allied Beauty Experts can help.  With more than 30 years of experience, we offer the most comprehensive occurrence-based insurance policies for the beauty industry.  Call us today at 1-800-444-7546 and let our experts guide you.  We’re confident that we will gain your trust through our responsiveness and superior industry knowledge.

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