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Run-Off · Tail Coverage

Run-Off and Tail Insurance: What It Is, What It Costs, and Where Limits Quietly Run Out

By Sophia Zaller, Founder / CEO October 21, 2026 9 min read

The short answer: Run-off insurance, also called tail coverage or an extended reporting period (ERP), lets you report claims after a claims-made policy has ended, as long as the underlying wrongful act happened before the policy ended or before a transaction closed. It buys more time to report, and it does not buy more limit, a wider scope of coverage, or a fresh policy year. Most companies need it when they are sold, wind down, retire, or move from a claims-made policy to an occurrence policy, and for directors and officers liability the standard purchase is a six year run-off policy priced as a one-time premium, commonly quoted at roughly 150% to 300% of the annual premium depending on the source and the claims history.

What do run-off and tail insurance actually mean?

Run-off and tail are two names for the same basic idea, which is a window of time after a claims-made policy ends during which a claim can still be reported and paid. The terms extended reporting period, extended reporting endorsement, discovery period, and tail coverage are used almost interchangeably across professional liability, directors and officers (D&O), errors and omissions (E&O), employment practices liability (EPL), and fiduciary lines. In practice, "tail" more often describes an endorsement added to an existing policy, while "run-off" more often describes a standalone policy bought when a company changes hands or closes its doors, though many brokers and carriers use the words loosely.

Why do claims-made policies create the need for a tail?

A claims-made policy responds only when a claim is both made against you and reported to the insurer while the policy is active, so the day the policy stops, protection for everything you did while it was in force stops with it. Lawsuits routinely arrive years after the conduct that caused them, and limitation periods in many states run for several years and can stretch further under discovery rules, which means a business can do everything right, cancel a policy, and still be sued over work that happened while it was insured. The tail exists to close that gap. Most claims-made forms also include a short automatic grace period, typically 30 to 60 days, to report claims already made, and it is usually free but covers very little.

What is the difference between a tail and a run-off policy?

	Extended reporting period (tail)	Run-off policy
Structure	Endorsement on the existing policy	Separate standalone policy, often written when control of a company changes
Typical length	Bought in annual increments, commonly up to five years	Usually up to six years, sometimes three to ten depending on the deal
Typical cost	Rises with each added year	One-time premium, generally higher than a tail because the term is longer
Common trigger	Cancellation, non-renewal, retirement, switching to occurrence coverage	Merger, acquisition, change in control, wind-down
Does it add limit?	No	Generally no, it shares the limit in force at the time

When do you need run-off or tail coverage?

You generally need it any time a claims-made policy ends without a renewal that carries your prior acts forward. The most common situations are a sale or merger where a change in control provision pushes the D&O policy into run-off, a business closing or an assignment for the benefit of creditors, a retiring professional, and a move from claims-made to occurrence coverage, which is the situation brokers most often miss because the new policy looks cleaner and cheaper while quietly dropping years of prior exposure. You usually do not need a tail when you renew with the same carrier or move to a new claims-made policy that keeps the original retroactive date, since the retroactive date is what preserves coverage for earlier work. If you are closing rather than selling, our guide to winding down a company walks through which policies need a tail and when.

It also helps to understand change in control wording before a deal is signed. These provisions typically stop coverage for wrongful acts after the transaction while preserving coverage for earlier acts, and some forms are stricter and can eliminate coverage even for earlier conduct, so the language in your actual policy controls rather than any general rule.

How much does run-off or tail insurance cost?

For D&O, published broker guidance puts a six year run-off at roughly 150% to 250% of the annualized premium in one report and 200% to 300% in another, with older market commentary describing a range of about 1.35 to 2.2 times the annual premium. A commonly cited rule of thumb outside the United States prices one year at about 100% of the expiring premium, three years at about 200%, and six years at about 300% when there is no claims activity. Those numbers move with claims history, the size of the limit, the industry, and how recently the company was sold or distressed, so treat them as orientation and not as a quote.

Two practical points affect the cash side. A run-off premium is normally a single lump sum that must be paid before the transaction date, and tail coverage generally cannot be premium financed. Merger agreements also frequently cap how much the buyer will spend on the tail, and a cap set too low can force the sellers into a narrower policy than they intended.

The limit problem nobody mentions at closing

This is the part of run-off coverage that surprises founders and boards most often: a tail extends the time you have, and it does not refresh the limit. If your D&O policy carries a $5 million limit, the six year tail typically shares that same $5 million across every claim for the whole period, so a claim that lands in the weeks before closing can consume part of it before the tail even begins. Suppose defense costs and a settlement draw $3 million in the month before a deal closes, the remaining $2 million then has to protect every former director and officer for the next 72 months, and once it is exhausted the insurer's defense obligation ends and the individuals fund their own defense against shareholder suits, earn-out disputes, and regulatory inquiries.

The lesson is to audit your limit well before negotiations peak and to ask a pointed question of any broker quoting a tail: what is the limit on the first day of the run-off, and what could erode it between now and then?

How do you structure run-off coverage well?

The strongest structures come from negotiating before the paperwork is final, and these are the levers we focus on with clients.

Ask for a reinstated or unimpaired limit. Negotiate with underwriters before signing so the run-off starts with a full limit on the transaction date regardless of pre-closing claims.
Add dedicated Side A protection. Side A responds when a company cannot or will not indemnify its directors and officers, and a Difference in Conditions (DIC) layer adds excess limit that sits above the shared tail limit and protects personal assets.
Request claw-back language. If a claim involves interrelated wrongful acts that began before the run-off and continued after it, claw-back wording brings that claim back into the run-off policy and closes a gap that otherwise sits between the old and new programs.
Put the tail terms in writing in the deal documents. The merger agreement or term sheet should state the length, the limit, the premium, and who pays, because last-minute disagreements about cost and structure are common.
Decide between a standalone run-off and the buyer's program. Waiving the change in control provision keeps the policy alive but means the old and new boards share one limit, so the decision depends on how strong and how large the buyer's program is.
Look at carrier security. A six year policy is a long promise, so the financial strength rating of the insurer matters at least as much as the price.

Why carrier-side experience matters here

Run-off is a place where the wording is the product, and the difference between a policy that responds and one that does not is usually a clause that looked routine at placement. Alton Risk was built by people who have underwritten these programs from the carrier side, which means we read a run-off form the way an underwriter prices and defends it, and we know which provisions carriers will move on and which they will not. The technology we use makes the review faster and the comparison cleaner, while the judgment about what to ask for comes from having sat on the other side of the table.

Planning a sale, a wind-down, or a change in coverage?

If you are approaching a transaction or reviewing a claims-made program, we will read your policy language, model what happens to your limit between now and closing, and negotiate the run-off structure with the carriers directly. Reach out at connect@altonrisk.com and we will start with your current policy.

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Frequently asked questions

What is run-off insurance in simple terms?

Run-off insurance is coverage that lets you report claims after a claims-made policy has ended, for wrongful acts that happened while that policy, or an earlier version of it, was in force.

Is tail insurance the same as run-off insurance?

They serve the same purpose and are often used interchangeably, although tail usually refers to an extended reporting endorsement on the existing policy and run-off usually refers to a separate policy bought around a sale, merger, or closure.

Does a six year tail give me six years of new limits?

No. A tail normally shares one aggregate limit across the entire period, and that limit can already be partly used by claims that arose before it began.

How long should a tail last?

For D&O it is typically six years, with some deals using three and others up to ten. For professional liability the tail should at least match the limitation periods that apply to your work, which in many states can reach five years or more.

How much does a D&O run-off policy cost?

Published guidance generally places a six year D&O run-off between about 150% and 300% of the annual premium as a one-time payment, depending on claims history and market conditions.

Can I buy a tail after my policy has already expired?

Usually not. The window to elect or purchase a tail is short, often 30 to 60 days, and a D&O run-off is generally bound and paid before the deal closes.

Do I need a tail if I renew with the same insurer?

Generally not, since continuous renewal keeps the retroactive date in place, though you should confirm any replacement claims-made policy preserves it.

Can tail or run-off premium be financed?

Tail coverage is generally not financeable, so it should be budgeted as a cash payment at closing.

What happens to run-off coverage if the insurer fails?

The run-off is only as reliable as the carrier behind it, which is why financial strength ratings should be part of the selection.

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