The Importance of Tail Coverage and How It’ll Benefit YouOct 07 2022
Insurance has so many terms and policies that it can be challenging to understand them all. That’s why we create these helpful guides to give regular people a clearer understanding of essential insurance terms and information.
In this guide, we’ll look closely at tail coverage, its benefits, and how important it can be to many professions, from physicians to lawyers. Keep reading to learn more!
What Is Tail Coverage?
Tail coverage is an addition to an insurance policy that protects a business or individual from liability or loss. After the policy expires or is canceled, the policyholders can opt for tail coverage, which acts as an extension of the policy.
Tail coverage is not a separate policy but more of a temporary extension—providing the same protection and coverage of the original policy for an extended period. It’s a temporary solution to a momentary loss of coverage and is ideal for people transitioning from one policy or insurance provider to another.
Types of Tail Coverage
Tail coverage can add to many different policies and industries. While it’s widespread for medical malpractice insurance, many other types of policies can incorporate tail coverage, including:
- Errors and omissions
- Employment practices liability
- Data breach insurance
- Management liability
- Professional liability
From small business owners to law firms and physicians, many professions and industries utilize tail coverage for insurance protection.
Tail Coverage & Claims-Made Policies
In many cases of professional liability insurance, policyholders have two choices: claims-made and occurrence-based policies. Tail coverage is only suitable for claims-made insurance policies.
A claims-made policy is insurance that covers the policyholder for claims reported while the policy is active. The incident or claim must occur after the active date of the coverage and before the expiration date. Tail coverage can extend this time frame even though the policy officially expires, so any claim or loss after the claims-made policy expires is still covered.
Do I Need Tail Coverage for Occurrence-Based Policies?
What about occurrence-based policies—do I need tail coverage for that? Occurrence-based policies are more comprehensive than claims-made as they protect the policyholder indefinitely for any claim or loss that occurs while the policy is active.
For instance, even if an individual’s occurrence-based policy expired three years ago but a claim arose for an incident five years ago—when the policy was active—the individual would be covered. Tail coverage isn’t paired with occurrence-based policies because it’s unnecessary—how long the policy is active is irrelevant because it covered any claims or incidents when it was active.
How Long Should Tail Coverage Last?
The length of tail coverage varies from individual to individual. For many, tail coverage is like gap insurance—temporarily providing coverage for a short period in an insurance transition phase.
For that reason, tail coverage can be as short as a few months or weeks. It’s not uncommon for tail coverage to last for years—mainly for retiring policyholders. Whatever the individual needs, there’s typically a tail coverage available that suits their requirements.
Is Tail Coverage Expensive?
How much should a person expect to pay for tail coverage? It’s difficult to speak generally about the price of tail coverage because every insurance provider and individual with different extenuating circumstances vary regarding the policy and cost.
Typically, tail coverage comes with a higher premium than the initial policy because it’s an add-on and temporary coverage. Most policyholders can expect tail coverage premiums to be between 100 and 300 percent of the original policy’s final premium. It’s more expensive, so most policyholders only use tail coverage for short periods.
Tail vs. Nose Coverage
You may also hear the term “nose” coverage in professional liability and other insurance policies—is that the same as tail coverage? No, nose coverage (also known as prior acts coverage) is like tail coverage in that it’s an addition to an original policy. Nose coverage applies to incidents when the policyholder was covered by a previously terminated policy from a different insurance provider.
Even if you’ve switched policies or insurance providers, nose coverage provides the same protection and benefits of the current policy retroactively to when a different provider insured you. Like tail coverage, it adds more protection to the individual, but it’s retroactive instead of the future.
Why You Need Tail Coverage
Why does someone need tail coverage with their insurance policy? There are many reasons to consider tail coverage, but the most common are individuals looking to fill a gap in coverage or professionals who have recently retired.
While it’s ideal for a professional in healthcare, law, or any other industry requiring professional liability insurance to have complete protection, gaps can occur. Some of the reasons there could be a gap in professional liability coverage include:
- An individual who is part of a group work policy decides to change jobs
- An individual in a group policy leaves for an individual policy
- An individual goes from one group policy to another
- A policyholder switches insurance providers
- There’s a gap between an expired claims-made policy and a new one
Whatever the reason, there are many instances where a gap between an old and new policy can occur. For many professionals in industries with liability insurance—like malpractice insurance for healthcare professionals—any gap in coverage risks their financial security and career.
No professional who can be hit with a malpractice lawsuit wants to leave anything to chance, even if it’s only for a few days. That’s why many professionals need tail coverage.
Another common reason for tail coverage is to stay protected into retirement. Some retirees schedule their policies to end when they retire, but there’s still the risk of a loss or malpractice claim against individuals after they retire.
Tail coverage provides retirees with peace of mind and adequate protection should they face a loss or litigation after they’ve left their profession.
Now, you should know a bit more about tail coverage, its importance, and how it can benefit you. If you are switching insurance policies or providers or are near retirement, consider tail coverage to ensure you’re not vulnerable in a transition period of claims-made policies.
If you have further questions about tail coverage or any other professional liability or malpractice insurance matters, don’t hesitate to call the experts at Baxter & Associates.