Occurrence Based Insurance for a Dental Associate Explained: Different From Claims Made for Dentists
What is occurrence-based malpractice insurance for a dentist? If you are just coming out of training and just graduated from dental school, you probably haven’t had to think about dental malpractice insurance before, but when you sign your new employment contract, there’s going to be language about who pays for the underlying coverage and then potentially must pay for coverage after the contract terminates. There are two common types of malpractice insurance for dentists. You have occurrence-based coverage and claims-made coverage. Let’s kind of go through both of those and then we’ll talk a little more in-depth about occurrence-based coverage. A claims-made policy simply means a policy must be in effect when the claim is made.
Occurrence Coverage for Dentists Who Need Insurance
A dentist could terminate the contract, leave an employer, and then if it’s a claims-made policy, it ends when they leave the employer, then there’s going to be a gap in between when they leave and then the last day they can be sued. In most states, it’s around two years. There are some exceptions. For instance, if some minors become an adult and there are others in different states but let’s just take two years kind of like a common amount. If you leave the employer and someone can sue you for two years, then you need a policy that covers the gap between those two dates, and that is called tail insurance. Now, who must pay for tail? Well, that’s going to be dictated by the terms of the employment agreement. It’s going to state most likely that the employer is going to pay for the underlying coverage, meaning, they’ll pay the annual premium, so how much it costs to cover the dentist on a year-to-year basis.
And then after the contract is terminated, who pays for tail insurance? It will state specifically in the contract. If it doesn’t, it needs to. Tail insurance is generally around twice what the annual premium is to cover the dentists. Whatever they must pay on a yearly basis, you just multiply that times two, and that’s kind of a good estimate as far as how much the dentist would have to pay for tail if they had to pay for it. It’s a one-time cost, so you don’t have to pay on a year-to-year basis. And a tail length can change depending upon how much coverage the dentist wants. It could be one year, two years, five years, or could be unlimited. That’s a little more expensive the more coverage you have. I would suggest just getting the longest amount of coverage.
Just getting a one-year tail, even though statute limitations on a claim is two years, puts the dentist at risk and it just doesn’t make sense for it’ll probably be the difference between a few hundred dollars makes zero sense not to go for the longer coverage. That’s claims-made insurance. Now, claims made is the most common type of malpractice insurance used by dental practices. However, some use what’s called occurrence-based coverage and in occurrence-based coverage, there has to be a policy in effect when the incident occurs. If there is an occurrence-based policy, then obviously, the incident is going to occur while the dentist is employed with the practice, and no tail insurance is necessary. So, you do not have to worry about any claims after the employment relationship ends if you have an occurrence-based policy.
Now, you’re probably thinking, alright, well, why would one choose occurrence versus claims made? Obviously, occurrence is better if you don’t have to purchase tail. Yes, that’s true, it’s just more expensive. An occurrence-based policy generally costs about a third more than a claims-made policy. So, just from the perspective of a dental practice, they would prefer to pay a third less per year for the malpractice insurance. Additionally, they would put the onus on the dentist to pay for tail and they save a bunch of money rather than having to pay a third more per year for an occurrence coverage and then no tail expense on the end as well. So, if you have the choice, there’s no reason not to go with the occurrence coverage if the employer is paying for it. Most employers are not going to leave it up to the dentist as far as which policy to choose.
They’re just going to have a policy and then all the providers in the practice will use the same policy. But let’s say maybe you’re an independent contractor and whoever you’re working for says, it’s up to you. Well, you need to do a kind of math equation. Let’s just say your insurance cost is 3000 per year. If you had an occurrence-based policy and let’s, just say for claims made, it was 3000 a year. Occurrence is a third more, so that would be 4,000 total for occurrence. Whereas claims made is 3000 plus usually a 6,000 tail. So, if you’re going to stay with an employer for one year, it makes sense to pay the 4,000 for occurrence-based coverage versus 3000 for a policy plus 6,000 for a tail. That’s a $5,000 difference. If you’re going to stay with an employer for a very long time, claims made might make more sense.
You just must do the math and shop for the policies and just see the price differences between the two. Dental malpractice insurance is not prohibitively expensive. Obviously, some of the subspecialties in surgery and things like that, it’s going to be more, but for the most part, dental malpractice is reasonable.
Tail Cost if You Have Claims Made Insurance
How much does tail insurance cost for a dentist? First, let’s talk about when you would need tail insurance, and then we’ll talk about how much it costs. There are two common medical malpractice policies for dentists, and that’s either occurrence-based or claims made. Under an occurrence-based policy, you need a policy in place when the incident occurs. Tail insurance is not necessary. Under a claims-made policy, a policy has to be in effect when the claim is actually made. It’s possible you terminate a contract, you leave an employer, but there’s still going to be a statute of limitation. A period that somebody could sue you from malpractice and in most states, it’s two years.
There are exceptions, but I’ll just say for these purposes, it’s two years. Tail insurance would be a policy that covers the gap between when you leave an employer and then the last day that somebody can sue you. Most places require tail policy to be at least two years at most. In the employment contract, it’s going to state who is responsible for tail insurance if you have a claims-made policy. If it doesn’t say that, then you need to figure it out and make sure that language is inserted before signing the agreement. In the agreement, it will have a section that states that the employer will provide the underlying annual premium, it’s how much it costs to insure you on a yearly basis. And then usually, it will state what type of policy that they utilize, and if it is a claims-made policy, who’s responsible to pay for tail insurance.
Most of the time, the dental practices will put the burden to pay the tail insurance on the dentist who is leaving the practice. The reason why they would use one policy over another, occurrence-based policy is generally about a third more expensive than claims made. And if the employer uses a claims-made policy, which is a third cheaper and puts the onus on the dentist to pay the tail insurance costs, they’re saving a decent amount over the course of an employment relationship between them and a dentist. So, if you are responsible to pay for tail insurance, how much does it cost? Well, a good rule of thumb is it’s about twice what your annual premium is. As I said before, the annual premium is how much it costs to insure you on a yearly basis.
And you just multiply that times two, and that will be how much you must pay for tail. It’s a one-time payment, so you don’t have to pay tail insurance every single year. It’s a one-time payment, and then you’re covered for however long a policy that you decided to go with. I would suggest if they had, and they will have, kind of an unlimited tail policy, which will just cover you indefinitely. That’s the way to go. As I said before, there are some exceptions and then there are some longer statute limitations based upon what state you’re in. And so, it would be a bad idea to get a policy that didn’t cover the entire amount. If you get sued and there is no insurance to cover you, you may be personally reliable for those damages if it gets to that point and then you’ll have to pay for your own attorney and go through that.
And then the settlement will come out of your own personal funds. So, it just makes sense to pony up by the indefinite tail, and that way, you’re covered. How much it costs kind of varies based upon specialty. If you’re just doing general dentistry, it’s going to be a little bit less, and if you’re maybe an endodontist or doing some more surgical procedures, it would be more expensive. But I guess what I would consider a reasonable amount for insurance is somewhere between 2,000 to 4,000 for an annual premium, that would not be uncommon for a general dentist. And so, your tail costs would be somewhere between 48,000 in that scenario. Not a prohibitive amount of money, but still an amount that you’re most likely going to pay for and essentially a budget that you’re going to pay for that amount.
And then, it has to be paid prior to the termination of the contract. So, before the contract is terminated, you would have to purchase that policy. And then the employer would require you to provide proof that you had purchased that policy. That’s how much tail insurance costs.
Which Coverage Should You Choose for a Dental Practice
Should a dentist choose occurrence-based or claims-made coverage? First, occurrence and claims made are the two most common types of malpractice insurance for dentists. And if you are an employed dentist with the practice, it’s very likely that the practice is going to use claims made. Let’s kind of go through the differences between the two and then maybe which one would benefit you. If you are thinking of signing an employment contract, there’s going to be a section in the contract that discusses malpractice insurance. If you’re an employee, the employer absolutely should pay for your underlying premium. An underlying premium is just simply how much it costs to insure you on a yearly basis.
They should pay for that. Now, if it’s a claims-made policy, it means a policy has to be in effect when the claim is actually made. It’s possible you could leave an employer and then there’s going to be what’s called a statute of limitation. It’s a period that someone can sue you. In most states, it’s two years, but there are exceptions. There are a few states that are a little longer than that, but let’s just use two years as an example here. If you had a claims-made policy, you would need tail insurance, which then covers the gap between when you leave and then the last day somebody can sue you. A claims-made policy versus an occurrence policy is really kind of the differentiator’s price. With an occurrence-based policy, you don’t need tail insurance but it’s about a third more expensive than a claims-made policy.
Under a claims-made policy, it would be a third cheaper than an occurrence-based policy. However, you would be responsible to pay for tail insurance. And a good rule of thumb is tail insurance costs about twice what your annual premium is. Let’s just say an annual premium of $4,000. Then if you’re responsible to pay for tail, it would be around $8,000. Now, that’s a one-time cost, it’s not yearly. And you would pay that prior to the expiration of the contract, or if it’s been terminated on your last day of work. And you’d have to pay the entire amount upfront but then you would be covered for however long. The tail costs can vary a little bit based upon two things: one, how long you’ve been with an employer, and then two, the length of the tail.
So, it can be anywhere from 1.5 times your annual premium, all the way up to three times based upon those factors. It’s honestly rare that you would have an employer say to you, we can offer you both policies, we can do occurrence-based, or claims made, it’s up to you. Well, if it’s up to you, then obviously, you should get an occurrence-based policy so as not to have to worry about tail insurance, it’s a no-brainer. If they say to you, we’ll pay for whatever underlying annual premium it is, and it’s up to you, then get an occurrence-based policy. Now, maybe you’re an independent contractor and whoever you’re going to work with states, you’re responsible to pay for the annual premium, and if you get claims made tail, that would be a scenario where you would kind of have to decide.
Insurers for Associates
Think of it this way: if you are working for someone as an independent contractor, and let’s just say you’re only going to work for one year and you can choose between either policy. Well, in that scenario, it would make sense to get an occurrence-based policy. Let’s just say you have a, as I said before, $4,000 annual premium. Well, at the claims made level, it’s a third more, so you’d be paying roughly $5,300 per year with an occurrence-based policy, wherein if you had a $4,000 claim-made policy and then the contract ends, and it’s twice as much, then you have to pay 4,000 for the annual premium, plus 8,000 for the tail, maybe a little bit less than that. So, you have a $12,000 total cost if you went with claims made, and if you’re only staying with an employer for one year. And then if you had an occurrence-based policy, you’re only paying 5,300.
So, you’re saving roughly $6,700 just by utilizing an occurrence-based policy. That scenario, once again, makes complete sense. Now, if you’re staying with an employer for a long period, or as an independent contractor, working for someone for a long period, let’s just say it’s 10 years. Well, in that scenario, you would have to do the math of, alright, if I’m paying a third more per year over the course of 10 years, is that going to be more expensive than having a policy that’s a third cheaper and then tacking on $8,000 at the end? The longer the timeframe you’re with an employer, the more it probably makes sense to go with a claims-made policy if you had the choice. Now, expecting to work an extended period like 5, or 10 years with one practice is full heartedly in my opinion. I mean, with the kind of proliferation of all these corporate dental practices swooping in and buying up all these dentist-owned practices, places that we’re great to work with before are now maybe not so great to work at, or with, and so I would not go into any kind of relationship expecting it to last more than 5 to 10 years.
It’s just very unlikely in this environment that that would happen. So, that’s a breakdown of occurrence versus claims made, and then maybe which one you should choose if you’re looking for a new position.
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