Why do I need tail coverage?
Claims made policies cover risk as long as the policy is in force. Once the coverage has been terminated, it’s as if no coverage ever existed. When Tail Coverage is purchased, coverage remains in place dating back to your retroactive date through your last day of coverage.
How long does the Tail Coverage last?
Tail coverage can vary. Some carriers will provide a 1-year, 2-year, or 3-year tail, but better quality policies will provide coverage in perpetuity.
How is Tail Coverage calculated?
Tail coverage is typically based on a factor the mature rate of your premium as well as where you’re at in the maturation process. It can also be calculated on a prorated bases if you are joining a group policy. For example, if you’re added to a group policy on 10/1/2019 and the effective date of coverage of the group policy is 4/1/2019, your rate would be prorated by 50% because you would only be on the policy for half of the policy period.
What factors are used in the calculation?
The factors can vary depending on the carrier. Some carriers will have a multiple of 1.5 for a 1 year tail and then increase that to 2X or even 3X for a longer tail. You will typically see this structure in place for non-standard carriers. Admitted carriers will generally have a 2X multiple and provide tail coverage in perpetuity. As you can see, tail coverage is very expensive regardless of the multiple used.
Is there a way to earn free tail coverage?
It depends on the carrier, but typically admitted carriers will give insureds a free tail if they meet certain criteria when retiring from the practice of medicine. Some will add age restrictions such as 55 or older and some will may require the policy to have reached maturity and/or you've been with the carrier for a certain period of time. It's important to consult with your broker.
What if I retire and then change my mind and want to continue working?
If you come out of retirement, it is imperative you speak to your broker or contact the carrier to determine if your free tail coverage is still in force. Most carriers will revoke the tail coverage if you start working as a physician again. You don't want to be in a position of having a claim denied because you came out of retirement and didn't notify the carrier.
What if I terminate my employment and join a new practice and they offer me prior acts coverage?
In that case, you would not need to purchase tail coverage. The new carrier would cover your risk dating back to your retroactive date and your new policy would be priced at the appropriate maturation step.