Tail Insurance: What is it, How it Works, and Why You Need it?

As a professional, you need insurance coverage to protect you from potential liabilities. One of the essential types of insurance you must have is professional liability insurance or errors and omissions insurance. However, this policy only covers events that occur during the coverage period. The tail insurance is the coverage you buy after the expiration of your insurance policy to protect you from claims that may arise from events that took place while the policy was still in effect. In this journal article, we will discuss the details of tail insurance, including what it is, how it works, and why professionals need it.

What is Tail Insurance?

Tail insurance, also known as an extended reporting period endorsement, is an insurance policy provision that allows you to report claims that took place during the policy period after the coverage has ended. Most professional liability policies cover claims that arise during the coverage period, but these policies do not cover claims for incidents that took place before the policy went into effect or after the policy has expired.

When you purchase tail insurance, it provides coverage for claims that arise from incidents that occurred during the previous policy period. Essentially, it extends the coverage period so that you can report claims beyond the expiration date of your insurance policy. It serves as an extension of your professional liability insurance, allowing you to cover any claim that was not filed during the policy period.

How Does Tail Insurance Work?

Tail insurance works by extending the coverage period of your previous insurance policy. It provides you with coverage for claims that arise from incidents that occurred during the policy period but were not reported until after the policy has expired. It is essential to note that tail insurance does not provide you with coverage for any new claims that occurred after the policy expired.

Here is an example to illustrate how tail insurance works: Suppose you are an architect, and you purchased a professional liability insurance policy for a period of one year, which expired last month. Today, you receive a letter from a client who is threatening to sue you for a design error you made six months ago. Since the incident occurred during the policy period, you can file a claim under the policy. However, because the policy has expired, the claim will not be covered unless you purchase tail insurance. By purchasing tail insurance, you can extend the coverage period and report the claim, and the policy will cover any damages or settlements resulting from the lawsuit.

Why is Tail Insurance Important?

For professionals like lawyers, accountants, architects, and other service providers, tail insurance is a crucial coverage that can protect them from potential claims that may arise after their policy has expired. There are several reasons why tail insurance is essential for professionals, including:

Protecting Your Professional Reputation

One of the primary reasons why you need tail insurance is to protect your professional reputation. lawsuits can damage your reputation and hurt your business. Tail insurance ensures that you can defend yourself against any claims that arise from incidents that occurred during the previous policy period, and it can give you peace of mind knowing that you are protected from any potential liabilities.

Complying with Legal Requirements

Some industries require professionals to have tail insurance as part of their licensing or contract requirements. For example, some state bar associations require lawyers to purchase tail insurance upon retirement or leaving the practice of law. Failure to comply with these requirements may result in the suspension or revocation of your license.

Covering Unforeseen Claims

Even if you take all the necessary precautions to avoid claims, there is still a possibility that a client or third-party may file a lawsuit against you. Tail insurance provides you with an additional layer of protection so that you can cover claims that arise unexpectedly. By having tail insurance, you can ensure that you are protected from any potential liabilities that may arise after your policy has expired.

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Conclusion

Tail insurance is an essential coverage that can protect professionals from potential liabilities that may arise after their insurance policy has expired. It extends the coverage period of the previous policy so that you can report claims that occurred during that period but were not reported until after the policy had expired. By purchasing tail insurance, you can protect your professional reputation, comply with legal requirements, and cover unforeseen claims. If you are a professional who provides services, you should consider purchasing tail insurance to ensure that you are protected from potential liabilities that may arise in the future.