What is an Extended Reporting Period (“Tail” Coverage)?

What Extended Reporting Period (ERP) coverage is and when it should be purchased.

Many small business owners are aware of the importance of claims-made insurance policies. However, they may not be aware of the added protection offered by extended reporting period coverage, also known as “tail” coverage. In this blog post, we will discuss what Extended Reporting Period (ERP) coverage is and when it should be purchased. We will also provide information about the cost of ERP coverage.

What Is ERP Coverage?

ERP coverage provides protection for a business if a claim is made against them after their existing claims-made policy has expired or been canceled. This type of policy allows companies to report a claim that arises from incidents that occurred DURING the time that the original policy was in effect but the insured only learns about the claim/incident AFTER the policy expires or is cancelled. ERP coverage can be purchased for a finite amount of time after your existing policy has expired, which can range from one month to six years (or longer).

When Should You Purchase Tail Coverage?

It is important to consider purchasing an ERP when you believe you may need additional protection beyond your current claims-made insurance policy’s expiration date. One common reason for purchasing tail coverage is if you are winding your business down and you want protection for claims that might develop from past work. Tail coverage will allow you to start a new chapter of your life while knowing you have protection against claims that might be reported in the future. 

Another common reason for purchasing tail coverage is if you are selling your business. The buyer will most likely NOT want to inherit liability associated with the business prior the purchase. In these circumstances, the buyer typically requires that the seller purchase tail coverage to ensure lawsuits stemming from occurrences prior to the sale do not become their responsibility. Generally speaking, the need for tail coverage tends to increase the longer you’ve had your policy in place because the potential exposure accumulates over time. 

How Much Does Tail Coverage Cost?

The cost of tail coverage depends on several factors such as the type of insurance policy being extended, the annual premium of the most recent policy, and the length of the extension. Tail coverage is typically offered between 1-6 years and the price increases as the length increases. The premium is typically based on a % of the most recent annual premium. For example, 1 year of tail coverage might be 75% of the most recent annual premium and 3 years might be 150%.

When considering purchasing tail coverage for your business, it is important to speak with an experienced insurance agent who can provide accurate quotes based on all applicable factors.

Conclusion

Extended reporting period (ERP) or “tail” coverage provides additional protection for businesses against potential liabilities stemming from incidents or events occurring during their current claims-made insurance policy’s term but reported after its expiration date or cancellation.

Business owners should consider purchasing tail coverage when they anticipate needing additional protection beyond their current policies’ expiration dates and should consult with experienced insurance agents regarding specific cost estimates applicable to their circumstances. By understanding how ERP works and how much it costs, businesses can make sure they have adequate protection in place.

At Fortside, we help clients purchase insurance solutions that fit their needs.

 

If you have questions about tail coverage or would like more insight on what coverage would be best for your specific needs, get in touch.