What Is Tail Insurance?

For many professionals and businesses, insurance is there to protect you when things don’t go as planned. But what happens when you retire, change jobs, or move to a new insurance provider? That’s where tail coverage comes in. Tail insurance extends protection for the work you’ve already done, even after your original policy has ended. At Rollo Insurance, we help Texans stay covered through every chapter of their careers, making sure your past work is just as protected as your future.

What Is Tail Insurance?

Tail insurance is short for what’s officially called an Extended Reporting Period (ERP) endorsement. It’s an add-on to a specific kind of coverage known as a claims-made policy.

Here’s how a claims-made policy works:
It only covers claims if two things happen:

1. The incident happened while the policy was active
   
2. The claim is reported while the policy is still active.

So if your policy ends and someone files a claim after that (even if the actual incident happened during your coverage period) you’re not protected. That’s where tail insurance comes in.

What Tail Insurance Does:
Tail coverage gives you extra time to report claims for things that happened while your policy was in place, even after it ends. It basically adds a “tail” to your old policy, making sure you’re still protected if issues come up down the road.

Who Needs Tail Insurance?

Tail insurance is crucial for any professional or business that has or had a claims-made professional liability (E&O) policy and is:

• Retiring or Leaving Their Profession: Physicians, lawyers, accountants, consultants, or other professionals who stop practicing.
• Switching Jobs or Firms: If your new employer’s policy doesn’t cover your past work (known as “prior acts” or “nose coverage”).
• Changing Insurance Companies: If your new insurer won’t cover incidents that happened under your old policy.
• Selling or Closing a Business: When a business with a claims-made policy stops operating, the owner still faces risks from past work.
• Taking a Sabbatical or Extended Leave: Any period where your active claims-made policy might lapse.

How Does Tail Insurance Work?

Let’s imagine you’re a consultant with a claims-made professional liability policy that ends on December 31st.

1. The Mistake: In June, you give advice to a client.
2. Policy Ends: Your policy expires on December 31st, and you don’t renew it (perhaps you’re retiring).
3. The Claim: In February of the next year, the client realizes your advice caused them a major financial loss and sues you.
4. Without Tail: If you don’t have tail insurance, your old policy won’t cover this claim because it was reported after the policy ended. You’d be on your own to pay legal costs and any damages.
5. With Tail: If you purchased a tail endorsement, you can report this claim to your old insurance company, and they will cover it because the mistake happened during the active policy period, and the claim was reported within the tail’s extended reporting period.

Tail insurance does not cover any new mistakes or services you provide after your original policy ends. It only extends the reporting window for past work.

What Does Tail Insurance Cover and Not Cover?

Covers:

• Claims (for financial damages and legal defense costs) that are reported after your claims-made policy ends.
• The wrongful act or mistake that led to the claim must have happened while your original claims-made policy was active.

Does Not Cover:

• Wrongful acts or services provided after your original claims-made policy ends.
• Claims for bodily injury or property damage (that’s typically General Liability).
• Intentional wrongdoing, fraud, or criminal acts.
• Claims that fall outside the limits or scope of your original policy.

How Does Tail Insurance Affect Cost?

Tail insurance is usually a one-time, lump-sum premium payment, not an ongoing monthly or annual payment. It’s often calculated as a percentage of your last annual claims-made premium.

• Average Cost: The cost of tail insurance typically ranges from 150% to 300% of your last annual claims-made premium. So, if your last yearly premium was $10,000, your tail cost could be $15,000 to $30,000.
• Factors Affecting Cost: Your profession (e.g., higher for surgeons, lower for consultants), your claims history, the length of the tail you choose, and your geographical location (states with more lawsuits might have higher costs).
• Term Length: Tail coverage can be for a specific period (e.g., 1, 2, 3, or 5 years) or an unlimited (indefinite) term. A longer tail costs more. It’s often recommended to get a tail that covers at least as long as your state’s statute of limitations for malpractice claims.

Tail Insurance in Texas (Specifically for Doctors and Professionals)

Tail coverage isn’t required by Texas law for most professional licenses, but if you have a claims-made policy, it’s strongly recommended especially for medical professionals. Hospitals and employers usually want proof that you’re covered for past work. If your new insurance doesn’t include “nose coverage” (which picks up your prior acts), then tail insurance is how you stay protected when switching policies.

Protect the Work You’ve Already Done 

At Rollo Insurance, we specialize in helping Texans make sense of the fine print, so you’re not caught off guard by unexpected claims down the road. Whether you’re changing jobs, retiring, or switching insurance carriers, we’re here to help you safeguard the professional legacy you’ve worked hard to build. Reach out today for a personalized consultation and move forward with confidence, knowing your past work is protected.