Tail insurance

Definition

Run-off cover a seller buys so claims filed after closing are still paid.

Why It Matters

Most small-business liability and professional policies are claims-made, meaning they answer only while the policy is live: the day the seller cancels theirs, a customer suing over a job finished two years ago has nobody to bill except the business you now own. Who buys the tail, for how many years, and at whose cost is a purchase-agreement term, not an afterthought, and it is cheap enough that a seller refusing to buy one is telling you something.

In numbers: A three-year tail on a $1M professional policy commonly runs 150% to 250% of one annual premium, so a $4,000 premium becomes a $6,000 to $10,000 line in the closing costs.