What is tail coverage? How does it work? Why is it important for a business to purchase tail coverage?
Tail coverage is an addition to a claims-made policy. It extends coverage for incidents that happened during the time you had your policy, but a claim was not filed until after your policy expired or was canceled. Tail coverage is another name for an extended reporting period.
What is tail coverage?
Tail coverage is an endorsement (or an addition) to your insurance that allows you to file a claim against your policy after it expired or was canceled. It applies to claims-made insurance policies and typically involves paying your insurer an additional fee.
You’ll find tail coverage in claims-made policies, such as professional liability, errors and omissions, and directors and officers insurance.
Tail coverage does not apply to occurrence-based policies. You don’t need tail protection for occurrence-based policies because coverage is available as long as the insurable event occurred during the policy period, even if you canceled your policy later.
Tail coverage is different from nose coverage. Nose coverage provides protection back to the first date of continuously maintained insurance coverage (typically with professional liability or E&O insurance). This means your current claims-made policy will even pay for incidents that happened under another policy as long as you kept your insurance active. The first date of coverage is also known as a retroactive date.
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What are the benefits of tail coverage?
Tail coverage protects your business in times of transition. It enhances both your financial security and peace of mind, allowing you to focus more on running your business. For instance:
When you retire, tail coverage makes sure you continue to have liability protection even though you canceled your claims-made insurance policy.
When you switch to a new occurrence-based policy, tail coverage protects your prior acts (work you did while you were insured elsewhere). Without it, you’d only have coverage for incidents that occur when your new policy is active.
How much does tail coverage cost?
Insurers typically charge a fixed percentage of your professional liability insurance policy cost, often between 100 percent and 300 percent of your final premium.
How Does Tail Coverage Work?
Here’s how this business insurance coverage option works.
Suppose you do not renew your professional liability insurance when it expires in January 2021 and you secure tail coverage for a year.
If a client files a claim in March 2021 for an event that took place in November 2020 when your business insurance was still in place, the insurer is expected to help you.
In summary, claims filed during the extended reporting period are attended to if only the event happened before the business insurance policy ended.
How Long Does Tail Coverage Last?
This coverage typically lasts between 30 to 90 days. Some policies provide an option to have this coverage for up to 3 years.
Your insurance provider should intimate you of the duration of the coverage and possible options available to you.
There are a selected few policies that offer the this coverage option. They include:
- Professional liability insurance
- Management liability insurance
- Data breach insurance
- Employment practices liability insurance
- Errors and Omissions (E & O) insurance
Things To Note About Tail Coverage
- It is only for a stipulated period. Any claim filed against you after the tail coverage period will not be attended to
- An event must have taken place during the retroactive date or the business insurance policy period before your insurer pays for claims.
Why You Need Tail Coverage?
The coverage is protection that covers claims against you when your policy ends.
If the claim is filed for an event after your policy ends, the insurer would not pay for such claims.
Businesses that need this coverage are businesses that provide consultancy services, advice, and tips.
Accountants, consultants, building contractors, and so on should make use of the this coverage option in their business insurance policy.