By What is tail coverage? How does it work? Why is it important for a business to purchase tail coverage?
These questions would be answered in this article as I look forward to explaining the concept of this coverage.
Business insurance is important for businesses no matter the nature and size of a business.
It insures the business, its owner, property, and customers from risks, threats, and liabilities.
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What is Tail Coverage?
The tail coverage is an add-on to the business insurance policy. It is enjoyed when your business insurance cover is written on a claims-made form.
Having this coverage protects your business from claims made after your business insurance policy expires.
Another name for this coverage is an extended reporting period. It will cover against claims reported when your business insurance policy ends.
The option to add this coverage to their business insurance is open to businesses and their owners.
Business owners can add this coverage when their insurance does not get renewed by their insurance provider or when they cancel it themselves.
Certain states have laws that regulate the use of tail coverage. In such states, this coverage is always included in their business insurance policy.
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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.
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How Much Does Tail Coverage Cost?
There is no stipulated cost for this coverage. Every insurer charges based on their preference.
Adding this coverage to your business insurance will increase the cost of your business insurance.
The length of the extended reporting period determines how much the coverage will cost.
The more the reporting period, the more the cost of the cover.
