How Much Does Tail Insurance Cost?

Tail insurance, or Extended Reporting Period (ERP) coverage, provides coverage for claims reported after a claims-made policy expires. It covers incidents that occurred while the original policy was active. This coverage bridges a potential liability gap, protecting professionals from financial responsibility for past acts if a claim arises after their claims-made policy is no longer active.

Key Factors Affecting Tail Insurance Cost

The cost of tail insurance is influenced by several variables reflecting a professional’s practice risk. The specific profession or specialty plays a significant role, as certain fields carry a higher risk of claims, leading to higher malpractice premiums and tail insurance costs. For instance, specialties like neurosurgery or obstetrics often have greater potential for severe claims.

An individual’s or practice’s claims history directly impacts the premium; frequent or severe past claims indicate higher risk and a more expensive tail policy. Geographic location also affects cost, as regions with higher litigation rates or specific legal environments may have elevated premiums.

The limits of the expiring claims-made policy are another determinant of tail insurance cost. Higher coverage limits, such as $1 million per occurrence and $3 million aggregate, typically align with the tail coverage, leading to a higher cost. The premium of the prior claims-made policy is also a direct factor, as tail insurance is often calculated as a multiple of this amount.

The duration of the claims-made policy with the same insurer can affect tail cost, as a longer history might imply more accumulated exposure. The reason for policy termination, such as retirement, a job change, or practice closure, can also be a factor.

Understanding Premium Calculation

Tail insurance premiums are calculated as a percentage of the last annual claims-made premium. Costs typically range from 150% to 300% of that final annual premium. For example, if a professional’s last annual premium was $10,000, a tail policy might cost between $15,000 and $30,000.

Insurers utilize actuarial data and risk assessments to determine the precise percentage applied to an individual’s profile. These models adjust the premium based on factors like specialty, claims history, and policy limits. This ensures the premium reflects the projected long-term risk of covering past acts.

The percentage integrates individual risk factors into a comprehensive calculation. High-risk specialties or a history of claims will push the percentage towards the higher end of the typical range. The calculation provides a one-time charge for potentially indefinite future coverage. Tail insurance premiums are fixed by the insurer based on their underwriting criteria and are not negotiable once offered.

How to Get a Tail Insurance Quote

Obtaining an accurate tail insurance quote requires providing specific details to the insurer or broker. Professionals need to furnish information about their expiring claims-made policy, including the insurer’s name, policy number, coverage limits (e.g., $1 million/$3 million), and effective dates.

To obtain a quote, you will need to provide:
Personal professional details, such as your full name, license number, specialty, and years in practice.
Information about your practice, including its type (e.g., solo, group, hospital-employed), location, and size.
A complete claims history, detailing any past claims or incidents.
The reason for the policy termination, such as retirement, changing employers, or practice closure.

The most common source for a tail insurance quote is the current claims-made insurer, who is obligated to offer the extended reporting period coverage. Independent insurance brokers specializing in professional liability can also assist in exploring options.

It is advisable to begin the process of seeking quotes well in advance of the claims-made policy’s expiration date. This ensures sufficient time for evaluation and purchase.

Payment Methods and Financing

Tail insurance premiums are typically paid as a single, upfront lump sum. The premium covers an indefinite future period for past incidents. Insurers require full payment immediately to account for this long-term, open-ended liability.

While a lump sum payment is standard, limited financing options may be available. Some third-party premium financing companies provide short-term loans for insurance premiums. These arrangements typically involve interest charges, adding to the overall cost.

In certain employment transitions, a new employer might cover the tail cost from the previous policy as part of a recruitment or separation agreement. Professionals should budget for this significant one-time expense, as it represents a substantial financial commitment.