So, you’ve probably heard a colleague or two talk about tail insurance. What exactly is it and how much does it cost? Is it something you really need to be concerned with? Today we’re diving into tail insurance in a bit more detail. We’ll go over what it is, what factors go into the cost of tail insurance, and what you need to know before you buy it.
So, what is this elusive tail insurance?
Tail insurance is an extension of your policy that is required upon cancellation when you have Claims-Made coverage. Your tail starts at your cancellation date and then it extends your protection into the future for any claims that may be made against you for the patients that you treated while you were working. If you have an Occurrence policy, you don’t need a tail.
If you don’t buy your tail after you cancel your Claims-Made policy, they you are essentially uninsured. If a claim comes in and there is no active policy in place, there is no protection, even if the event occurred when your policy was active in the past. So, as you can see, it’s an incredibly important thing for doctors to take care of – BUT tail insurance can be very expensive.
How much does tail insurance cost?
Tail insurance typically costs 1½ to 2 times the mature Claims-Made premium. So, if your premium was $10,000 a year, you can expect your tail to be around $15,000 – $20,000.
There are a variety of factors that can impact the amount of the premium.
1. It depends if the tail is limited or unlimited
An unlimited tail is the most robust and comprehensive kind of coverage. It does not have an expiration date, so the tail covers you indefinitely into the future. It even extends coverage to your estate, in the event that a doctor is sued but passes away before the case is resolved.
Most tail quotes are issued as unlimited tails, so it is the standard option that is offered to healthcare providers. But, if you don’t want or need an unlimited tail, then you can purchase a limited tail – which provides protection for a shortened amount of time. The most common limited tails are 1 year tails, 2 year tails, 5 or even 10 year tails. With a limited tail, the protection ends at the end of the term, so if a claim were to be filed beyond that timeframe, there would no longer be coverage. Limited tails are less expensive than unlimited tails.
2. How long you’ve been insured
Your Claims-Made insurance policy will have a retroactive date listed on it. This retro date is the date that your policy covers you “back to”. It’s often the inception date of your practice – or when you first started working.
Just like a Claims-Made policy’s premium starts low and increases every year until it reaches the “mature” price, the tail is also discounted in these early years before a policy reaches it’s maturity. So, if you’ve only had the policy for 2 years, your tail will be discounted at the relevant rate for only having had 2 years of exposure to cover. The longer you have the policy, the higher the rate will be – but it is capped once it reaches the mature price (which is usually after 5 years of coverage).
3. The policy limits you carry
Your tail policy will be quoted at the same limit as your Claims-Made insurance policy, unless you request otherwise. Most carriers will let you reduce your tail limit (which would save you a bit of money), but it’s generally not advisable to do so. Why? Because your tail insurance covers you all the way back to your retroactive date (which is the inception date of your policy). And if you lower your limits, you’re lowering your amount of coverage for any potential claims for patients you treated all the way back to that start date.
If you want to increase your limits for tail, unfortunately most carrier will say NO. And here’s why… if you’ve carried $1M/$3M limits for your entire career, and paid premiums for that amount of coverage, the insurance company is not going to let you jack your limits up to $3M/$5M or $5M/$10M for your tail. They just haven’t collected enough premium from you along the years to account for that additional exposure.
If your policy limits fluctuated during the lifetime of your Claims-Made policy, generally the carrier will only let you obtain a tail policy at the highest limit held within the last 5 years of insurance.
4. How many hours you’ve been working
Most carriers will offer a discounted tail rate for doctor that are working part-time. Now, you can’t just drop to part-time right before you cancel to get a lower rate. You will have had to be part-time for a few years before they’ll offer you this credit, but it does help to keep your cost down and should be noted when you request your tail quote.
Buying tail coverage is a one-time purchase and payment is usually required promptly after your policy cancels. Most tail quotes are only good for 30-60 days and once the quote expires, and you cannot have it reissued. It’s important that you plan ahead for the purchase of your tail insurance and begin considering outside finance options, if necessary.
If you miss out on the opportunity to buy your tail, talk to you agent about other options. It may be possible to get coverage from the secondary market, but understand that coverage will likely be limited and the price will probably be much higher (if available, at all).
If the insurance carrier that you work with does not offer you payment plan options, you can secure your own outside financing, or talk to your agent to see if there are finance plans that they offer to ease the burden of payments. Keep in mind that you can shop around for tail options, so you’re not necessarily locked into buying the tail from your current carrier.