It is important to know what type of policy you are purchasing. Is it a “claims made” policy or is it a “per occurrence” policy. There is a very important distinction between these policies.So here are the main differences:
Claims made policies only cover you if you have the policy while you are insured. If you continue to renew each year, it is generally not a problem. You can open yourself to not being covered if you switch insurance companies or shut down your business. The reason for this is that if a claim comes up after your policy period and you did not renew the insurance, there will be no coverage. You can protect yourself from this by buying “tail coverage” covering your prior work.
Per Occurrence policies work differently in that if the claim occurred while you were insured, there is coverage no matter when the claim is actually reported. A good example is you are a plumber. You do work that damages someone’s house but is not noticed for three years. If the damage you caused was a covered claim, this would be covered under a “Per Occurrence” policy regardless of whether or not that policy was still in force. You would not be covered under a claims made policy, unless you kept the same policy renewing for those three years.
The reason people go with claims made policies is that it is a less expensive policy. It provides less coverage long term. It can be an option for you as long as you know what you are buying. Claims made policies can be as much as 40% less in premium as compared to occurrence policies.