Which statement best describes a claims-made policy?

• A. It covers claims occurring at any time
• B. It applies only to claims made during the policy period
• C. It offers higher policy limits for coverage
• D. It is cheaper than occurrence policies

Answer: (B)

A claims-made policy is specifically designed to provide coverage for claims that are made during the active policy period, regardless of when the incident that led to the claim occurred. This means that as long as the claim is reported to the insurer while the policy is in effect, it will be covered, even if the related incident happened before the policy was purchased, as long as it falls within the retroactive date specified in the policy.

This type of policy structure allows both insurers and insureds to understand their liabilities more clearly, as it confines the coverage to incidents reported during the designated timeframe. It is crucial for businesses and professionals, particularly in fields such as healthcare and legal services, where claims can arise long after the services were provided.

In contrast, options that suggest coverage for claims occurring at any time or offering higher limits do not accurately reflect the nature of claims-made policies. Claims-made policies do not inherently provide higher policy limits, and while they may offer lower premiums compared to occurrence policies, this is not a defining characteristic of their design. The distinctiveness of claims-made policies lies in their stipulation that coverage is based on when claims are made rather than when the events took place.