Insurance is a very important part of modern life and business. In this paper I will discuss the basic concepts of insurance, claims-made and occurrence liability policies, factors for selecting an insurance company and policies, and the difference between workers compensation and liability insurance.
What is insurance?
Insurance is a two-way legal agreement between the insurer and the customer. The customer, which may be an individual, business, or other entity, agrees to pay the premiums as required, in exchange for monetary protection from the insurer for any possible substantial loss. Customers usually obtain insurance, not to cover the trivial incidents of life or business, but to cover the potential significant losses which could be a financial hardship for them. The premiums of all customers of the insurance company are pooled together. The insurance applies statistical analysis to determine the chance that a particular event might occur to one of their customers. From this analysis they can determine the premiums which must be collected and the claims which must be paid to keep the insurance company financially profitable. There are many type of insurance including life, property and casualty, car, health, and disability. Each is very specific for what losses then will cover and reimburse (Pareto, n.d.).
“Claims-made” and “Occurrence” Liability
With “claims-made” policies, claims must be submitted within the time of insurance coverage and the event must have occurred after the retroactive date. The retroactive date is usually set at the start date of the new policy to prevent having to cover for past events. If cancelling a claims-made policy or changing over to an occurrence policy, it is important to consider the purchase of an extended reporting period option so there isn’t a break in coverage for claims that have yet to be submitted. “Occurrence” liability means that the event must occur during the time of insurance coverage, although the claim may be made after the end of coverage. Claims will continue to be submitted after the policy period, as long as the statute of limitations allows, which makes it difficult to determine the insurance company’s profit and loss status. For this reason occurrence policies are usually more expensive than claims-made policies. (Nonprofit, n.d.; Rotarius & Liberman, 2000)
Factors to consider when selecting an insurance company and policies
Rotarius and Liberman (2000) provide excellent advice on selecting professional liability insurance for health care organizations. There are many questions that should be asked when making this important decision.
• What is their rating with unbiased appraising services? They suggest using several rating organizations including A.M. Best Company, Moody’s Investor Services or Weiss Rating Service. They advise only to choose insurance companies with an A or A+ rating.
• Can I...