What does "tail coverage" refer to in insurance terms?

Tail coverage refers to insurance that protects a policyholder for future claims that may arise after a policy has expired or been canceled. This type of coverage is particularly important in professions where claims may not be made until long after the work has been completed, such as in construction, engineering, or professional services. For instance, if a construction project were completed and a claim were to arise months or even years later due to an issue related to that project, tail coverage would provide protection for the contractor or professional who is facing that claim, despite the original insurance policy not being active at that time.

This is significant because it ensures that individuals or businesses are not left vulnerable to potential legal actions that could arise long after their direct involvement in a project has ended. Tail coverage serves to bridge the gap between the end of a policy's active period and the likelihood of future claims, providing peace of mind and financial protection for policyholders.