You have no control over when a customer files a claim against your business. There are times when a claim is made after the term of the policy has expired, for example if you retire or close your company. Tail coverage gives you the protection you need for certain policies – as long as the policy was in place when the claim incident occurred.
What is tail coverage in insurance?
In business insurance, tail coverage — also called an extended reporting period — is an acknowledgment on an insurance policy of an accident that occurs during the coverage period, but is reported after the policy expires or is cancelled. As an endorsement, there are often additional fees that you must pay. Tail coverage is found in commercial liability insurance policies that are claims policies.
Unlike frequency-based policies that automatically include coverage for a claim that occurs during the life of the policy – regardless of when it was filed – tailed coverage is a special addition to policies for policyholders interested in submitting a late claim.
Tail coverage also differs from retroactive coverage that begins before the policy start date. Retrospective dates extend coverage, while tail coverage extends only the reporting period.
How does tail lock work?
Tail coverage gives you peace of mind that you have accident coverage after your policy is canceled or expires. Tail coverage is an important consideration when you anticipate coverage changes. Tail coverage is typical when a business closes, a service provider retires or when a business transitions to a new, existing policy.
The way Tail Cover works is simple: it adds a reporting period to the end of your cover term. For example, suppose your policy has a date of January 1 to December 31, 2021, and you request that special coverage be added to this claims policy for a period of six months. This means that a claim can be submitted after December 31, 2021 until June 30, 2022 for an incident that occurred during the policy term in 2021.
Tail coverage does not extend coverage, which means it will not cover an incident that occurs after December 31, 2021. If an incident occurs and someone files a claim against your business, the claim will be denied and you will be liable for any losses or damages from that claim.
Who Should Consider Tail Covering?
Tail coverage is a must if you plan to retire or close your business for the foreseeable future. It is also necessary to have this endorsement if you are switching to a speaking policy.
Consider this example: An accountant is about to retire and has a claims insurance policy from January 1, 2000 to December 31, 2020. The accountant retires and closes his practice as of December 31, 2020, meaning there will be no new potential claim exposure from that date. But the accountant could still be sued for work he did in 2018 with a claim filed in early 2021.
Without covering the tail, the accountant will be responsible for all legal and defense fees as well as any settlement or judgment that comes from the lawsuit. With tail coverage, you start the policy limits and pay for the claim defense while dealing with settlement costs up to the policy limits.
When it comes to moving into a happening policy, remember that made policies only pay for accidents that happen during the policy’s life, although a claim can be reported at any time after that. This means that if your business moves from a claims policy that expires on December 31, 2020, to an occurrence-specific policy, there may be a coverage gap.
Imagine that an incident that occurred in December of 2020 is not reported until February 2021. The claims policy without tail coverage will not cover the incident because it was not reported within the permitted period. This occurrence policy will not cover this because the accident occurred before coverage began.
How Long Should Tail Covering Last?
There may be coverage gaps if tail coverage is not extended for a sufficient period of time. For example, suppose the tail coverage on your policy ending on December 21, 2020, was for a period of six months. This means that claims reporting can occur until June 30, 2021. However, if the insurance claims process begins in July of 2021, your company will not have coverage because the coverage period has expired.
To avoid coverage gaps, talk to your insurance representative and legal counsel. Learn about the statute of limitations in your state for filing claims. Make sure you have tail coverage that lasts as long as the statute of limitations so you don’t find yourself past the reporting date and undetected.
What types of insurance offer tail coverage?
You can get coverage for certain types of liability policies. Tail coverage is offered in claims insurance policies but not in insurance policies.
These are the most common types of commercial insurance policies under which you can get tail coverage:
Frequently Asked Questions
Here are some of the most frequently asked questions about tail covering:
What is the difference between foreground coverage and tail coverage?
Tail coverage is part of the claims policy. However, not every claims policy has tail coverage. This is an optional coverage that is usually added via policy endorsement. You will have to request tail coverage, decide on the length of coverage and pay the appropriate premium.
How much does tail cover cost?
The cost of tail coverage depends on the type of insurance you have and the length of tail coverage. One example is tail coverage added to medical malpractice insurance, which costs about 200% of an expired premium. This means that the $7,500 premium claims policy requires another $15,000 to obtain tail coverage.
Tail coverage is usually added before the policy expires or is cancelled. So when you receive your renewal invoice or cancellation notice, you will have the ability to add tail coverage. This may be two months before the coverage ends. If you did not choose tail coverage before canceling the policy, you may have up to 60 days after termination to add coverage. Your insurance company will give you details on how to do this.
How do you get the tail cover?
As an endorsement, it is important to make the election to cover the tail: it is not added automatically. Talk to your insurance company if you are concerned about getting tail coverage. Your representative will give you details of the company’s procedures for adding the endorsement and paying the additional premium.
Is previous business coverage the same as tail coverage?
The claims policy can be modified in two ways: coverage can be extended to prior actions retroactively, or the reporting period can be extended after the policy ends with tail coverage. Thus, covering previous works is not the same as covering the tail; There are two different options you can choose through the Claims Policy. You can have one without the other, or you can choose both.
Are facts or claims better made?
Policyholders enjoy made documents because they know they will be protected no matter when the claim arises. However, these policies are usually more expensive than claims policies. To maximize cost savings, claims made policies are the best option.
How do you know if an insurance policy is claims or has occurred frequently?
Most policies are occurrence policies. If you have a professional liability, EPLI policy, or directors and officers policy, you may have a claims policy. Since a claims policy only covers incidents in which a claim is made during the policy term – or tail coverage period – you’ll want to ask your insurance company how your policy is classified. If there is tail coverage, ask how long until you fully understand the terms of your coverage.
What are runoff claims?
Runoff claims are similar to tail coverage. It is something stipulated in a claims policy which states that the insurer remains liable for any claim caused by the policyholder, but that it is made after the policy is terminated. The run-off period is usually longer – up to five years – while the extended reporting period or tail coverage often lasts only one year. Additionally, runoff claims are usually found when an insurance merger occurs.