Whether you’re planning for retirement, selling your business or transitioning into a new career, there may come a day when you need to exit your Pillar To Post home inspection franchise.
Tail coverage can help you protect yourself and what you’ve built, by helping manage the risk of any claims popping up after you’ve left the franchise.
Here’s what you need to know about tail coverage, which is required for all Pillar To Post franchisees when they exit their business:
Why Is Tail Coverage Necessary?
Your Professional Liability Insurance protects your business from client claims made during the normal course of business operations and active policy coverage. But what happens after you cease operations and your policy ends?
You can face a claim from a client months or years after your business has ceased operations. Without tail coverage, that claim wouldn’t be covered after your insurance coverage ends, putting your personal assets, retirement savings or new career at risk.
What Is Tail Coverage?
Tail coverage is an extended reporting period (ERP) endorsement to your Professional Liability policy that helps franchisees manage the risk of a claim during a specific time period after the end of your policy. Tail coverage allows you to report a claim that otherwise would not have been covered after the policy’s expiration.
Many Professional Liability policies are offered on a claims-made basis. If a loss occurs during the active policy period, but a claim isn’t filed until months or years later, outside of the effective policy dates, then the policy coverage would not apply. But with tail coverage, the same claim would be covered.
How Does Tail Coverage Work?
Whenever you begin thinking about exiting your franchise business, bring up tail coverage with your insurer. Typically, you will purchase extended reporting period endorsements in lieu of renewing your existing policy. If you’re in the middle of your current policy, your insurer may allow you to cancel the policy and begin tail coverage on the same effective date.
Common features of tail coverage:
- Tail policy coverage includes options of one, two or three years of coverage.
- ERP endorsement periods are fixed and can’t be extended or renewed for another year.
- Tail policy premiums generally must be paid in full at the beginning of tail coverage.
- Continued claims-made coverage isn’t available under the same policy once tail begins.
- Claims that occur during tail coverage should be reported to your insurer as soon as possible.
- Protection from delayed claims reporting ends with the completion of your tail coverage period.
What’s Required for Franchisees?
If you’re thinking about exiting your home inspection business, it’s important to note that there are minimum requirements for Pillar To Post franchisees.
As an organization, Pillar To Post requires that each franchisee have tail coverage when you are either selling or closing your business. Each franchisee needs to have a 2-year tail policy at minimum.
Through Lockton Affinity’s Pillar To Post Franchisee Insurance Program, a 2-year tail policy will cost a franchisee 150% of their Professional Liability premium. Lockton Affinity also offers a 3-year option at 200% of the annual premium. This coverage will meet the franchise requirements by naming Pillar To Post as an additional insured.
When it’s time to exit your business, remember it is important, and required, to have appropriate tail coverage. A tail policy can help you protect not only you and your clients, but your future after you’ve worked so hard in the course of your franchise business.