Running a business comes with various risks, and one way to mitigate these risks is through business insurance. One aspect of business insurance that often gets overlooked or misunderstood is tail coverage. In this article, we will discuss tail coverage in detail, how it works, and who should consider adding it to their insurance portfolio.
What Is Tail Coverage in Business Insurance?
Tail coverage, also known as an extended reporting period (ERP) or tail policy, is an optional add-on to certain types of business insurance, such as professional liability (errors and omissions) or directors and officers liability insurance. It provides coverage for claims that arise from incidents that occurred during the policy period but are reported after the policy has expired or been canceled. This can be particularly important for businesses that provide professional services, as claims can sometimes be filed years after the service has been provided.
How Does It Work?
To better understand how tail coverage works, it is essential to know the difference between claims-made and occurrence-based policies. Most professional liability policies are claims-made, which means they cover claims that are both made and reported during the policy period. In contrast, occurrence-based policies cover incidents that occur during the policy period, regardless of when the claim is made.
Tail coverage comes into play when a claims-made policy is either canceled or not renewed. Suppose a professional liability claim is filed after the policy has expired or been canceled, and no tail coverage is in place. In that case, the business owner may be left without any coverage for the claim, even if the incident in question occurred during the policy period.
When tail coverage is added to a claims-made policy, it extends the reporting period for claims that arise from incidents that occurred during the policy period. This means that even if the claim is made after the policy has expired or been canceled, the tail coverage will provide protection up to the limits of the policy. The length of the extended reporting period can vary, typically ranging from one to five years or even unlimited in some cases.
Who Should Get Tail Coverage?
Tail coverage benefits businesses that provide professional services, such as consultants, architects, engineers, attorneys, medical professionals, and financial advisors. These businesses face a higher risk of being sued for errors, omissions, or negligence in their work, even long after completing the service. As a result, they are more likely to need the extended reporting period provided by tail coverage.
Business owners should also consider tail coverage if they plan to retire, sell their business, or otherwise end their professional services. This is because claims may still arise from services provided before these changes, leaving the business owner personally liable for any damages awarded.
In addition, businesses switching insurance carriers or changing from a claims-made policy to an occurrence-based policy should evaluate the need for tail coverage. The new policy may not cover incidents that occurred under the previous policy, so tail coverage can help to fill this gap in coverage.
Conclusion
Tail coverage is an essential component of a comprehensive business insurance portfolio for professionals in various industries. It provides an extended reporting period for claims that arise from incidents that occurred during the policy period, ensuring that business owners have the necessary protection in place, even after their policy has expired or been canceled. To determine if tail coverage is right for your business, consult with an experienced insurance agent who can help you assess your risk and make an informed decision.
Protect your business and your bottom line with the Tabb Insurance Agency’s reliable business insurance in Conyers, GA. Our agency understands the unique insurance needs of businesses, and we are committed to providing you with the coverage that meets your specific needs. With our knowledge, skills, and experience in the insurance industry, you can trust that we will get your business all of the coverage it needs and none that it doesn’t. Contact us today!