What Is Tail Coverage for Insurance?
Tail coverage is a part of how your seguro de negocio
coverage works if it’s written on a claims-made form. It gives your business protection for claims that are reported after your insurance policy ends. This coverage is also known as an extended reporting period.
Generally, business owners have the option to add tail coverage to their claims-made policies. They can add this coverage after canceling their insurance or when an insurer doesn’t renew the policy.** Some states have laws related to tail coverage. So, some coverages may have a tail period included in the policy. For example, some policies may include a shorter period of tail coverage between 30 and 90 days. For some policies, like our employment practices liability insurance, you can pay for an option to have three years of tail coverage.
There are two things you should be aware of with tail coverage:
- The claim has to be for an event that occurred on or after the retroactive date and before the end of your policy period for your business to get coverage. The retroactive date helps cover losses before your policy effective date.
- Tail coverage is typically only available for a certain amount of time after your policy expires. If a claim gets reported after tail coverage ends, you won’t have coverage.
There are some insurance coverages that have an option for unlimited tail coverage. You can work with an insurance agent or one of our specialists to learn more about these coverages.
You can find tail coverage in common types of business insurance policies, such as:
How Long Should Tail Coverage Last?
If you get tail coverage, it can last a year or more. You can work with your insurance agent or insurer to see how long of an extended reporting period is right for your business.
The longer your tail coverage, the longer your protection can last. For example, say you don't renew your professional liability policy after it expired in September 2020. Because your policy wasn’t renewed, you add tail coverage for three years. Your client sues your business in October 2021 for an incident that occurred during your policy period. The insurer can help because the claim is reported during the tail coverage.
Claims-Made vs. Occurrence: Tail Coverage
When you get insurance coverage, your insurer will write it on a claims-made or occurrence form. When it comes to claims-made vs. occurrence forms
, they refer to how your coverage gets triggered.
- Claims-made policies means your insurer helps cover claims reported during your policy period. The incident also has to occur on or after the retroactive date and before the end of the policy period.
- Occurrence policies gives you coverage for incidents that happen during your policy period, regardless of when the claim is reported.1
Tail coverage only applies to a claims-made policy. It extends the amount of time a claim can be brought against you and reported. Because it doesn’t matter when a claim gets filed with occurrence insurance, as long as the loss occurred during your policy period, tail coverage isn’t necessary.
Why Do I Need Tail Coverage for Insurance?
Tail coverage can give you extra protection and help cover claims filed after your policy ends. If a claim gets brought against you after your policy ends, your insurer normally wouldn’t cover it. Some types of businesses can benefit from having tail coverage, like accountants.
Clients rely on accountants for financial advice or filing important documents, like taxes. Let’s say an accountant forgets to use all of the financial documents when completing a client’s tax return. The client later finds out from the IRS that they owe unpaid taxes and a penalty for the error. They sue the accounting firm for damages. If the firm no longer has accountant insurance
but has tail coverage, the insurance company can help cover this claim.
How Much Does It Cost to Add Tail Coverage?
Every company is unique, so business insurance costs
vary. Buying tail coverage for your policy will likely increase your insurance cost. Generally, the longer the extended reporting period, the more you’ll have to pay, but you’ll also have more protection from claims.
Find Out More About Tail Coverage and Insurance
We’re an experienced insurance company with specialists that can answer any of your coverage questions. You can also work with a local insurance agent to make sure your small business has the protection it needs. Whether you have questions about purchasing tail coverage or how it can help your business, we’ve got your back.
** Various conditions must be met in order to be eligible for tail coverage. Additionally, state specific rules may apply.
1 For personal and advertising injury claims, the incident must occur during the policy period.