You’ve built a professional practice over decades. You’ve served your clients well, renewed your PI insurance every year without fail, and never faced a claim. Now you’re retiring, selling up, or moving into a different career. The last thing you want to do is buy more insurance. But here’s the uncomfortable truth: the day you stop practising is not the day your professional liability ends. It’s the day your exposure becomes personal.
This article explains run-off cover — what it is, why you need it, how long you need it, what it costs, and what happens if you go without. It covers the regulatory obligations that force run-off cover in certain professions, the practical scenarios where it matters most, and how to arrange it before your active policy expires.
The Claims-Made Problem
To understand run-off cover, you first need to understand how professional indemnity insurance works in Australia. Unlike car insurance or home insurance, which operate on an occurrence basis (the policy in force when the accident happened pays the claim), Australian PI policies operate on a claims-made basis.
This is not a minor detail. It’s the entire reason run-off cover exists.
Under a claims-made policy, the policy that responds to a claim is the one in force when the claim is made against you — not the one that was in force when you did the work. If you designed a building in 2018 while holding a PI policy, let your cover lapse when you retired in 2024, and a defect claim arrives in 2026, you have no insurance to respond. The 2018 policy won’t cover it because the claim wasn’t made during its policy period. You have no current policy because you let it lapse. You are uninsured and personally exposed.
This isn’t a loophole or a technicality. It’s the standard structure of the Australian PI market and has been for decades. The reason is actuarial: claims-made policies allow insurers to price risk based on the claims environment at the time claims are expected to arise, rather than guessing at the claims environment years into the future when today’s work might generate claims. It’s efficient for insurers and for the market, but it creates a fundamental problem for professionals who stop practising — the claims don’t stop just because you did.
What Run-Off Cover Is
Run-off cover is professional indemnity insurance that you purchase when you stop practising, protecting you against claims made after your active PI policy ends but arising from work you performed while you were insured. It’s sometimes called extended reporting period cover or tail cover, though in the Australian market, run-off is the standard term.
Run-off cover does not cover new work, because there is no new work. It covers claims arising from your past professional services, provided the claim is made during the run-off period and relates to work you did before the run-off period began. It is, in effect, an extension of your claims-made protection for a defined period after you’ve ceased creating new exposure.
Run-off cover can be structured in several ways. The most common is a fixed-period policy — typically one, three, or seven years — purchased as a single policy at the time you cease practice. Some insurers also offer perpetual run-off cover, where you pay a one-off premium for lifetime protection. Fixed-period policies are more common and more affordable, and for most professionals, a seven-year policy aligned with the standard limitation periods is adequate.
Importantly, run-off cover is typically structured as a single-premium policy. You don’t pay annual premiums for seven years. You pay once, upfront, and the cover runs for the nominated period. This reflects the fact that the risk is finite and declining — no new exposure is being created, and the pool of potential claims shrinks over time as limitation periods expire.
Why Claims Can Surface Years Later
If you’ve practised for decades without a claim, it’s natural to wonder why one would suddenly appear after you’ve stopped. The answer lies in the nature of professional liability claims and the legal timeframes within which they can be brought.
Tax and Financial Advice
The ATO can amend tax assessments going back two years for individuals and four years for most businesses in standard cases, and further where fraud or evasion is alleged. If a client’s tax affairs are audited and errors are discovered in returns you prepared, the client may face amended assessments, penalties, and interest — and they may look to you for recovery. This can happen years after you lodged the return, and years after you retired.
Construction Defects
Buildings develop problems slowly. Water ingress through a failed waterproofing detail might take five years to cause visible damage. A structural deficiency in a basement slab might take eight years to manifest as cracking. By the time the defect is discovered, investigated, attributed to a design error, and made the subject of a claim, a decade or more may have passed since you completed the design.
Corporate and Transactional Advice
Advice you provided on a corporate restructure, a merger, or a financing arrangement may only be tested years later when the transaction underperforms or fails. A due diligence report you prepared in 2020 might be scrutinised in 2026 when the acquiring company discovers liabilities it says you should have identified. The cause of action accrues when the loss is suffered, and for complex corporate transactions, that can be years after the advice was delivered.
Audit and Assurance
Audit failures are among the most delayed claims in the Australian PI market. A company’s financial statements might be audited without qualification for years before a change of auditor, a due diligence process, or a liquidity crisis brings hidden problems to light. By the time the claim arrives, the original audit partner may have retired — and without run-off cover, they’re personally exposed.
The Limitation Periods
The legal time limits for bringing claims vary by the nature of the claim and the jurisdiction, but the key numbers for Australian professionals are these: six years from the date the cause of action accrued for contract claims in most states and territories; six years from the date the damage was suffered for tort claims, extendable to three years from discoverability with a long-stop of ten or twelve years in most jurisdictions; and ten years from practical completion for building defect claims under state-based building legislation.
These limitation periods mean that a professional who stops practising today should expect to remain exposed to claims for at least six to seven years in most professions, and ten years or more for architects, engineers, and building practitioners.
How Long Should You Maintain Run-Off Cover?
The answer depends on your profession and your circumstances, but here is the practical guidance that applies to most Australian professionals.
For accountants, tax agents, BAS agents, financial advisers, IT consultants, management consultants, and similar professions where the work product is advice or services rather than physical assets, a six to seven year run-off period is generally sufficient. This aligns with the standard six-year limitation period for contract and tort claims, plus a buffer for claims where the loss wasn’t immediately discoverable.
For architects, engineers, building designers, building surveyors, and any professional involved in the design or construction of buildings, a ten-year run-off period is strongly recommended. The statutory limitation periods for building defect claims in most Australian states extend to ten years from practical completion, and the interaction between these statutory regimes and the common law limitation periods means that ten years is the minimum safe run-off period for construction professionals.
For medical and allied health professionals, the limitation periods for personal injury claims are generally shorter — three years from discoverability in most jurisdictions, with a long-stop of twelve years — but the specific run-off requirements vary by the professional’s indemnity arrangements and should be assessed individually.
If you’re unsure about the right run-off period for your profession, seek legal advice. The cost of that advice is trivial compared to the cost of guessing wrong.
Regulatory Requirements for Run-Off Cover
Several Australian professional registration regimes mandate run-off cover explicitly, and these requirements are enforced through the registration renewal or cessation process.
The NSW Architects Registration Board requires registered architects to maintain run-off cover upon ceasing practice. This is not optional — the Board will not finalise the cessation of your registration until you can demonstrate compliant run-off cover is in place. Other state architect registration boards have equivalent requirements, though the specific terms vary.
The Tax Practitioners Board does not explicitly mandate run-off cover in its published guidelines, but its requirement that tax agents and BAS agents maintain adequate PI cover extends to the run-off period by implication. A tax agent who retires without run-off cover and then faces a claim arising from past tax advice is, in the TPB’s view, likely to have breached their professional obligations by failing to maintain adequate protection against the known risks of their practice.
ASIC’s PI requirements for AFSL holders include specific run-off cover obligations. An AFSL holder who ceases to provide financial services must maintain run-off cover that meets ASIC’s standards, and failure to do so can result in regulatory action even after the licence has been cancelled.
For professionals in other fields, run-off cover may not be a regulatory requirement, but it is a professional one. The major accounting bodies, for example, strongly recommend run-off cover for retiring members and may view its absence as a factor in any disciplinary proceeding arising from a post-retirement claim.
Scenarios Where Run-Off Cover Is Essential
Retirement
The classic case. You’ve reached retirement age, your practice is winding down, and your PI policy is due for renewal. The temptation is to let it lapse and keep the premium in your pocket. Don’t. Converting your active policy into run-off cover at the point of retirement is the single most important insurance decision you’ll make in the final phase of your career.
The cost should be budgeted for throughout your working life, not confronted as a surprise at retirement. If you’ve been paying $3,000 a year for PI cover, a seven-year run-off policy might cost somewhere in the range of $10,000 to $20,000 as a one-off payment. That’s a meaningful cost, but it’s a fraction of the exposure from a single uninsured claim.
Selling Your Practice
When you sell your professional practice, the sale agreement should address who bears the cost of run-off cover for your pre-sale work. This is a standard negotiation point, and there’s no single correct answer — sometimes the seller pays, sometimes the buyer pays, sometimes the cost is split.
What’s not negotiable is the need for the cover itself. The buyer’s PI policy will not cover your pre-sale work. You remain personally liable for the professional services you provided before the sale, and you need run-off cover to protect against claims relating to that period. If the sale agreement doesn’t address run-off cover, raise it. If the buyer resists, that’s a red flag.
Career Change
You might leave architecture for project management. Or accounting for a corporate finance role. Or IT consulting for an in-house product management position. The career change doesn’t extinguish your liability for past professional work.
If your new role doesn’t require PI insurance, you need run-off cover for the limitation period applicable to your former profession. If your new role does require PI insurance, check whether your new employer’s policy covers your work as an employee and whether it includes retroactive cover for your prior professional services. If it doesn’t, you need your own run-off cover.
Closing Down Due to Financial Difficulty
This is the hardest scenario because the professional who most needs run-off cover is the one least able to afford it. If your practice is insolvent, the temptation to walk away from PI insurance entirely is powerful.
But the consequences of doing so can be devastating. A claim that arrives after closure, with no insurer to respond and no business assets to draw on, leads directly to your personal assets. Your home, your savings, and your superannuation are all exposed. Personal bankruptcy is a real outcome.
If you’re in this position, speak with your broker about the most affordable run-off options. Some insurers offer reduced-limit run-off policies — $500,000 instead of $2 million, for example — at a fraction of the full-limit cost. Some professional associations have hardship arrangements or group facilities for retiring members. Even minimal cover is vastly better than none.
Extended Leave
If you’re taking extended parental leave, a sabbatical, or time away for health reasons, you face a choice: maintain your active PI policy or let it lapse and purchase run-off cover.
Maintaining active cover is usually the better option if you plan to return to practice. It preserves your claims-made continuity, which matters when you seek cover again — a gap in your PI history is a red flag for insurers and may result in higher premiums or reduced cover when you return. Run-off cover is better suited to permanent departures from practice.
What Happens If You Don’t Have Run-Off Cover
Without run-off cover, you are self-insured against all claims made after your active policy ends. This means you pay your own legal costs to defend any claim — costs that can easily reach $50,000 for a straightforward matter and $300,000 or more for complex litigation. If you lose or settle, you pay the damages from your own pocket.
There is no government safety net. No industry compensation fund that steps in when PI cover is absent. No obligation on your former insurer to assist. If your policy has ended and you haven’t purchased run-off cover, you’re on your own.
The exposure is not theoretical. Every year, Australian professionals face claims relating to work performed years earlier, and those without run-off cover face the full financial consequences personally. A retired accountant in Perth sued over tax returns prepared seven years earlier. An engineer in Melbourne facing a structural defect claim ten years after the building was completed. A management consultant in Sydney defending a negligence claim five years after changing careers. None of these are hypothetical — they are the routine business of Australian PI insurers and the lawyers who handle professional negligence claims.
The Cost of Run-Off Cover
Run-off cover is typically priced as a multiple of your last active annual premium. Industry practice varies by insurer, profession, and the length of the run-off period, but as a general indication: a single year of run-off cover might cost between 50% and 100% of your final annual premium. A three-year policy might cost between 125% and 225% of your final annual premium. A seven-year policy might cost between 200% and 350% of your final annual premium.
Perpetual run-off cover, where available, is more expensive again — a one-off premium that reflects the lifetime exposure. It’s less common than fixed-period run-off and is typically only relevant for professionals with very long-tail exposure who want absolute certainty.
These are broad ranges. The actual cost depends on your profession, your claims history, the nature of your work, the insurer’s assessment of your run-off risk, and market conditions at the time you cease practice. An architect who has designed high-rise residential towers will pay more for run-off cover than an accountant who has prepared individual tax returns for thirty years. The premium reflects the risk.
For many professionals, the cost of run-off cover comes as a shock — it’s a significant cheque to write at a time when you’re winding down your income. This is why planning ahead matters. If you’ve been setting aside a portion of your annual PI premium throughout your career to fund the eventual run-off cost, the burden is manageable. If you’re confronting it for the first time at sixty-five, it feels like a tax on retirement.
How to Arrange Run-Off Cover
Start the conversation before your active policy expires. Ideally, at least a month before your renewal date. Contact your broker or insurer and explain that you’re ceasing practice and need run-off terms.
Your current insurer is the natural starting point. They’re already on risk, they understand your practice, and they may offer run-off terms that are more favourable than what you’d get from a new insurer. If they decline — and some insurers don’t offer run-off cover directly — your broker can approach other insurers in the market.
The information you’ll need to provide includes a summary of your practice activities over the final years of operation, details of any known claims or circumstances that might give rise to claims, your reasons for ceasing practice, and your desired run-off period. The insurer will quote a premium based on this information and, if accepted, issue a run-off policy document.
If you’re a member of a professional association, check whether the association has arranged any group run-off facilities for retiring members. CPA Australia and the Australian Institute of Architects, for example, have previously arranged such facilities, though availability varies over time.
If your practice is being sold, negotiate the run-off cover as part of the sale agreement. The buyer may agree to pay for your run-off cover, or the cost may be shared. Get this in writing, and make sure the run-off policy is in place before the sale completes.
You can also compare run-off cover options through online insurance platforms. Services like BizCover{target=“_blank” rel=“noopener”} can provide quotes for PI insurance, though run-off cover specifically may require speaking with a broker for a tailored quote given its specialised nature.
Summary
Run-off cover is not optional for any Australian professional who cares about their financial security after they stop practising. The claims-made structure of Australian PI insurance means that your active policy stops protecting you the day it expires, while your liability for past work continues for years — and in some cases, for a decade or more.
The right run-off period depends on your profession. Six to seven years for most advisory professions. Ten years for architects, engineers, and building practitioners. The cost should be planned for throughout your career, not confronted as a surprise at retirement. And if you’re selling your practice, negotiating run-off cover should be part of the deal.
The alternative — no run-off cover — means you personally bear the full cost of any claim that arrives after you stop working. Legal costs alone can consume a retirement savings account. A settlement or judgment can take your home. It’s not a risk any professional should run.
Frequently Asked Questions
Can I just keep renewing my active PI policy after I retire instead of buying run-off cover?
In theory you could, but in practice most insurers will refuse to renew an active PI policy once you’ve disclosed that you’ve ceased practice. Active policies are priced on the assumption of ongoing work generating revenue and exposure. If you try to renew without disclosing that you’ve retired, you risk the policy being voided for material non-disclosure. The honest and proper approach is to disclose the change in circumstances and convert to run-off cover.
What if I genuinely can’t afford run-off cover?
Speak with your broker. A reduced-limit run-off policy — $500,000 instead of $2 million, for example — will cost much less than full-limit cover and still provides meaningful protection. Some insurers offer excess-layered run-off products. Your professional association may have hardship arrangements or group facilities. Even minimal cover is vastly better than being uninsured. If you have limited personal assets, a $500,000 policy might be sufficient to prevent bankruptcy even if it wouldn’t cover the full value of a major claim.
Does run-off cover include legal defence costs?
Most Australian run-off policies include defence costs, but you must check the policy wording. As with active PI cover, you need to understand whether defence costs are included within the limit of indemnity (costs-inclusive) or in addition to it (costs-in-addition). Given that litigation costs in professional negligence claims can be substantial, costs-in-addition cover is strongly preferred for run-off policies. Confirm this with your broker before committing.
I’m retiring and closing my company. Do I still need run-off cover?
Yes. Deregistering your company does not extinguish claims arising from work the company performed while it was trading. Claimants may seek to pursue former directors personally in certain circumstances, and if the company has been deregistered, there may be procedural hurdles to bringing a claim that result in the claimant naming you individually. Run-off cover held by the company before deregistration, or personal run-off cover if you practised as a sole trader, is essential.
What happens if a claim exceeds my run-off cover limit?
Your insurer pays up to the limit of indemnity, and you’re personally liable for the excess. This is why choosing an adequate run-off limit matters. Your exposure doesn’t reduce just because you’ve retired. If you worked on high-value projects or advised clients with significant financial exposure, your run-off limit should reflect that reality. A structural engineer who designed major commercial buildings during their career needs substantially more run-off cover than a bookkeeper who processed payroll for small businesses.
Is run-off cover tax deductible?
Run-off cover premiums are generally deductible as a business expense, consistent with the treatment of active PI premiums. The deduction is claimed in the income year the premium is paid. If you’ve ceased trading entirely, the treatment may differ depending on your circumstances and entity structure. Confirm with your accountant based on your specific situation.
Disclosure
The information in this article is general in nature and does not constitute financial or insurance advice. Professional indemnity insurance policies vary significantly between insurers, and you should read the Product Disclosure Statement (PDS) for any policy you are considering. Premiums, cover limits, exclusions, and terms differ by provider and individual circumstances. This site may receive a referral fee if you obtain a quote or purchase a policy through links on this page. Always assess your own needs and seek professional advice if you are unsure about your insurance requirements.