What does "claims-made" policy mean?

A "claims-made" policy is best defined as a type of liability insurance that provides coverage specifically when a claim is reported during the policy period, regardless of when the incident that led to the claim occurred. This means that for a claim to be covered under a claims-made policy, it must be reported to the insurer while the policy is in force. This characteristic of claims-made policies is crucial because it protects insurers from future liabilities that could arise from incidents that happened before the policy was in place.

For instance, if an insured individual has a claims-made policy in effect from 2020 to 2021 and an incident occurs in 2020 but the claim is not reported until 2022, that claim would not be covered, even if the incident happened during the timeframe of the policy. This aspect distinguishes it from other types of policies, such as occurrence-based policies, which provide coverage for incidents that happen during the coverage period regardless of when the claim is made. Understanding this fundamental distinction is key for anyone studying insurance regulation and policies.