What is the key difference between an occurrence policy and a claims-made policy?

The key difference highlighted by the correct answer lies in the timing of coverage in relation to when incidents occur and when claims are reported. An occurrence policy provides coverage for incidents that happen during the policy period, regardless of when the claims are actually made. This means that if an incident occurs while the policy is active, it will be covered even if a claim is filed many years later, as long as the incident itself took place while the policy was in force.

This contrasts sharply with a claims-made policy, which only provides coverage for claims that are made during the active policy period. If an incident occurs but the claim is reported after the policy has ended, there would be no coverage under a claims-made policy. This time-limit aspect is crucial in understanding the operational functioning of these two types of insurance policies. Recognizing these fundamental differences assists policyholders in choosing the right coverage for their needs, depending on the nature of their business and the risks they face.