Tail coverage gives you extra time to report claims after your policy has expired and is included in most claims-made liability policies.
It’s called tail coverage (yes, that’s really the name!) because it begins at the end of your policy period. It’s also known as an extended reporting period (or ERP) since it gives you extra time to report claims to your insurer. In essence, tail insurance will give you peace of mind that claims made while the tail is in effect will be covered.
When Do I Need Tail Coverage?
So now that you know what tail coverage is, when do you actually need it? There are two main instances in which tail coverage is a good idea:
When You Let Your Claims-Made Policy Expire–and Don’t Replace It
You should consider purchasing tail coverage if you have a claims-made insurance policy that expires or is canceled and you don’t replace it with another claims-made policy. Why? Claims-made policies only cover you for claims made against you when your policy is active.
So if a customer files a claim against you after your claims-made insurance coverage has ended, you’d be stuck paying for the claim out of pocket. This could happen if, say, you retire, sell your business, or simply stop buying insurance. Tail coverage extends the amount of time you have to report claims. For instance, if you buy a three-year tail, you’ll have three years to report claims to the insurance company. So if someone makes a claim against you during the tail period and you report it to your insurer, you’ll be covered.
You don’t need tail coverage if you replace your claims-made policy with another claims-made policy. When the first claims-made policy ends, the next one will step in to cover claims made while it’s in effect. As long as each claims-made policy is replaced by another one, coverage will be continuous without any gaps.
Some claims-made policies include a retroactive date, which is a cut-off point for covered events. When your policy includes a retroactive date, it covers claims made during the policy period that result from events that occur on or after the retroactive date.
For instance, suppose a claims-made policy runs from October 1, 2022 to October 1, 2023, and has a retroactive date of October 1, 2020. The policy covers claims made during the policy term that result from incidents that occurred on or between October 1, 2020 and October 1, 2022. In insurance-speak, events that occur on or after the retroactive date, and before the policy inception date, are called prior acts. Insurance that covers prior acts is called prior acts coverage or nose coverage.
Claims-made policies are often used to insure professional liability (also called errors and omissions). Examples of professional liability are medical malpractice insurance, employment practices liability insurance, and cyber liability insurance. Claims-made policies are also used to provide general liability coverage to high-risk businesses.
When You Switch from a Claims-Made to an Occurrence Policy
Another situation in which you’d need tail coverage is if you switch from a claims-made insurance policy to an occurrence insurance policy.
First, what is an occurrence policy?
Occurrence policies cover damages that result from events that happen during your policy period—no matter when the claim is made. Say a customer slipped and fell at your business while you were insured by an occurrence policy. You knew nothing about the injury until the customer filed a claim two years later. Because your occurrence policy was in effect when the injury happened, it would cover the claim.
This type of policy would provide coverage even though it wasn’t active anymore. That’s different from a claims-made policy, which will only cover claims made while your policy is in force. Most business liability insurance policies, including general liability and business owners policies, are occurrence policies, and tail coverage doesn’t apply to them.
So now that you understand how an occurrence policy works, let’s look at what happens when you switch from a claims-made to an occurrence policy—and why you’d need tail coverage:
You own a company that has a claims-made policy running from June 1, 2021 to June 1, 2022. When the policy expires, you’ll replace it with a new occurrence policy. Unfortunately, a customer slipped and fell on your premises in May 2022, and you get the claim in September (after your claims-made policy has expired).
Since the claim was made after your claims-made policy expired, it won’t be covered by that policy. Remember, a claims-made policy covers claims made while your policy is active. Will the claim be covered under your new occurrence policy? The answer is no because an occurrence policy only covers events that happen while that policy is active. Your occurrence policy wasn’t active when the customer fell.
This example demonstrates why you need tail coverage when you switch from a claims-made policy to an occurrence policy. Tail coverage gives you extra time to report claims after your claims-made policy ends. But what kind of tails can you buy? And for how long? We’ll go into that next:
Types of Tail Coverage: Basic vs. Optional
Most claims-made policies provide tail coverage if your policy is canceled, not renewed or replaced by an occurrence policy. Many policies include both a basic and an optional tail. The basic tail is automatic, free and lasts for a short period of time (such as 60 days).
An optional tail is available for an additional premium. It applies for a specific amount of time, such as one year or three years. Most tails (automatic and optional) don’t change your aggregate limits. If the aggregate limits have been lowered by claim payments, the remaining amounts apply to the tail.
Let’s take a more in-depth look at what the basic and optional tails cover, so you can decide what’s best for your company.
The Basic Tail
In the claims-made version of the standard commercial general liability policy, the basic tail gives you five years to report claims that result from incidents you’ve reported to your insurer during your policy period or within 60 days after it’s expired.
For example, suppose you were aware of a slip-and-fall accident when it happened and notified your insurer immediately. Because you told your insurance carrier about the accident during the policy period, the claim should be covered.
The basic tail also gives you 60 days to report claims that result from incidents you haven’t yet reported to the insurer. In the previous example, suppose you didn’t know that a customer had fallen until the 35th day of your basic tail coverage. As long as you report the claim within the 60-day time period, you should be covered.
As we said earlier, the basic tail coverage doesn’t change your policy limits. Claims you report during the tail coverage period are subject to the aggregate limits that remained when your policy ended. So, if your claims-made policy has a $1 million general aggregate limit and your insurer already paid out $500,000 to settle a bodily injury claim, the remaining $500,000 of your aggregate limit will apply to any claims you report during your tail.
The Optional Tail
Because incidents that occurred in the past can generate future claims, small businesses should consider purchasing an optional tail, also known as a Supplementary Extended Reporting Period.
The optional tail typically starts when the basic one ends (tail to tail coverage so to speak). It covers claims you receive and report while the optional tail is in effect. While some optional tails reinstate your aggregate limits, most don’t. If your aggregate limits have been reduced by claim payments, the remaining limits will apply to your optional tail.
Optional tails vary in length. Some last for three or five years while others are longer. Some insurers sell tail coverage in increments, such as $1 million, $2 million, and $3 million. If you want to buy optional tail coverage, you need to submit a request within the time period stated in your policy, such as 60 days after your policy expires.
The cost of tail coverage is often (but not always) a multiple of your annual premium. So, if your premium was $800 a year, you might pay $800 for a one-year tail, $1,600 for a three-year tail, or $2,400 for a five-year tail.
Are there Statutes of Limitations on Claims?
Claims that result from accidents that happened years ago are difficult to defend. That’s why many states have passed statutes of limitations. A statute of limitations prevents you from filing a claim if a certain amount of time has passed since the incident. The laws mainly affect occurrence policies, since they cover claims that can be made many years after the policies expire.
For instance, California statute requires property damage claims to be filed within three years of the date the damage occurred. Another California statute states that personal injury suits must be filed within two years of the date of the injury.
Statutes of limitations apply mainly to medical malpractice, construction, and product liability.
The Bottom Line: Tail Coverage Gives You Time to Report Claims
Tail coverage protects you when you have a claims-made policy that you’re replacing with an occurrence policy or not replacing with any insurance at all. It gives you time to report claims after your policy has expired.
The optional tail is your best bet since you truly never know when a customer, client or third party may bring a claim against you. So now that you know all about tail coverage, what’s left to do? Talk to your broker and make sure you have it!
1. Introducing Yourself
Your introductory email needs to pack a lot of information into a small package. Try something like this:
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My name is John Doe and I work for ABC Agency, where we provide business insurance policies to many of Dallas' rockstar small businesses.
Congratulations on your new business, Jane's Bakery. Are you wondering if you have all the insurance you need? Or if your policies will really cover you in a pinch?
At ABC Agency, we pride ourselves on providing robust, comprehensive coverage options to companies like yours with flexible, pay-as-you-go plans.
Are you available this week to talk more about how we can help? I can help you find the most affordable rates and the best policies out there.
I look forward to speaking with you soon.
2. Presenting a Quote
Once you've met with your potential client, a quick reply with their quote will get the ball rolling.
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Thanks so much for meeting with me this morning. I loved touring Jane's Bakery–I can still smell those delicious chocolate chip cookies baking! You have a great location, and I'm sure you're going to do great on Front St.
After reviewing my notes, I've pulled together an insurance quote for you (attached). I recommend a business owner's policy. A BOP includes several insurance products in one: liability, property insurance, and business interruption insurance. It offers robust coverage at a competitive price.
I'll call you in a few days to see what you think about this insurance plan. In the meantime, if you have any questions, don't hesitate to email me or call me at [phone number].
Again, thank you for your time today. I look forward to working with you in the future.
3. Thanks for Purchasing a Policy
Gratitude is important! It's never a bad idea to thank your clients for their business.
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Thank you for choosing a business owner's policy with ABC Agency. We know it's so important to get the right coverage for your business, and we are honoured you've placed your trust in us.
We're excited to work closely with you, and our no. 1 goal is to make sure you're business is always protected.
Do you have any questions? We are here to help. Reach out whenever something comes to mind.
Thank you again for choosing ABC Agency to insure Jane's Bakery.
4. Welcome Email
A welcome email helps clients feel like you're there to help–and can softly pitch other insurance products you offer.
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Welcome to the ABC family! We are thrilled to have you as a new customer and can't wait to meet all of your insurance needs.
As an independent insurance agency, we work with multiple insurance providers to find the best coverage options for all our customers. If you need any other type of insurance–like [include additional offerings unique to your agency, like life insurance, health insurance, home insurance or anything else]–we can help you too.
Do you want to discuss any of these policies?
5. Introducing a New Product
A happy client may want to expand their business with you.
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I hope all is well with you and Jane's Bakery. I stopped in yesterday for a blueberry muffin and coffee, and they were delicious. I loved the hint of cinnamon in the muffin! Was that your idea?
I wanted you to be the first to know we are now offering commercial vehicle insurance to our policyholders. Auto insurance for your catering vans is super important since your personal car insurance won't cover them.
We're offering this insurance coverage solely to our current business clients at the moment and have some very competitive rates.
Would you like me to work up a quote for you?
As always, thanks so much for being a part of the ABC family.
6. Asking For Referrals
Once your relationship is established and comfortable, let your clients help you grow.
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You've been a valuable member of the ABC family for two years now, and we so appreciate your business–not to mention the muffins you supply for our monthly meetings!
Because you are a valued policyholder, I wanted to ask a quick favour. I know you are active in the local Chamber of Commerce, and I'm hoping you might know some colleagues who would benefit from working with our insurance company.
Referrals are one of the most effective ways to connect with our community since people really trust their friends, family and colleagues. Is there anyone you'd recommend I speak with?
Remember that in addition to business insurance products, we offer everything from life insurance policies to pet insurance.
As a thank you for your help, we will send you an Amazon gift card of $100 when your referrals buy insurance from us.
Thanks so much for your help!
7. Policy Renewal
If your client needs to renew their policy with you, send an email like this:
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I hope you're doing well! What a year it's been—from being listed as one of the top 5 bakeries in Dallas to being an official vendor for the city—you have so much to be proud of.
Just a heads up that your business owner's policy is up for renewal soon and will expire on June 15, 2023.
If you're still happy with the coverage, we can easily renew it for you.
Do you have some time to chat this week?
Looking forward to serving you again!