Tail Premium Factor
Key Takeaway
The multiplier applied to the final annual premium to calculate the cost of purchasing tail coverage. Factors typically range from 0.75 to 3.0, depending on the length of the extended reporting period.
Definition
The multiplier applied to the final annual premium to calculate the cost of purchasing tail coverage. Factors typically range from 0.75 to 3.0, depending on the length of the extended reporting period. A one-year tail commonly costs 75 to 100 percent of the annual premium, while an unlimited tail can cost 200 to 300 percent.
Why This Matters for Law Firms
Understanding this concept is essential for law firms because it directly affects how your coverage responds when a claim is filed. Misunderstanding policy structure terms can leave your firm exposed to uninsured losses, particularly during carrier transitions or when claims surface years after the underlying work was performed.
Example Usage in Context
A managing partner reviewing the firm's renewal materials might ask the broker: "Can you confirm our tail premium factor aligns with what we had under the prior carrier? We want to make sure there are no gaps in our retrospective protection."
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