Which basis of insurance is usually more expensive early in coverage?

The claims-made basis of insurance is often more expensive early in coverage. This type of insurance policy provides coverage for claims made only during the policy period, which means that the insured party must maintain the policy continuously to ensure coverage for future claims related to past incidents.

In the early years of a claims-made policy, premiums tend to be higher due to the uncertainty surrounding the claims that may arise. The insurer actively calculates risk based on the likelihood of claims being reported, and this risk is higher when the policyholder is just beginning coverage and has not established a historical claims pattern. As the policy matures and the claim history develops, premiums may stabilize or decrease, reflecting a more accurate assessment of risk over time.

In contrast, an occurrence basis provides coverage for incidents that happen during the policy period, regardless of when the claims are filed, which tends to distribute the cost of risk more evenly across the policy term. Options discussing cash or accrual basis are more relevant to accounting and financial reporting rather than insurance.