What's a Tail Policy?
A tail policy - also known as an Extended Reporting Endorsement - is an extension of your cancelled or expired claims-made policy. Under a claims-made policy, covered claims are those that occurred on or after the retroactive date and that were reported during the active policy period. If for example, if you have a claims made policy with a retroactive date of October 1, 1987, then your claims made policy will cover claims that are reported during the active policy period and that occurred on or after October 1, 1987.
But let's say you've decided to retire or perhaps you're moving to a group and no longer need your own individual policy. What happens to your prior acts?
This is where the tail policy comes in. Let's use that same claims-made policy with a retroactive date of October 1, 1987. You purchase a tail policy on July 1, 2006 and then receive notice of a claim on August 1, 2006. If the claim is based on an incident that occurred on or after October 1, 1987 but prior to July 1, 2006, your tail policy would respond. Any claims received for acts or events that occurred after July 1, 2006 would not be covered under the tail policy.
Tail policies differ among carriers so make sure you understand how your tail coverage will work. Questions to ask are how much it will cost, how long your reporting period will last and whether or not the company offers a free tail policy under certain conditions such as death, disability or retirement.