Should a Dentist Choose Claims Made or Occurrence Insurance?: Dental Insurance Is Either Claims Made or Occurrence
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.
Insurance Considerations for Dentists
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 on 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.
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.
Occurrence Coverage for a New Dentist
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 time frame 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 foolhardy 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.
Claims Made Coverage Tail Cost
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 Policy is Right for a Dentist?
One is occurrence-based coverage, and the other is claims made. In an occurrence-based policy, tail insurance is not necessary. It just means a policy must be in effect when the malpractice event occurs. The other coverage is called claims made and, in that scenario, tail insurance is necessary because it states that a policy must be in effect when the claim is made. It’s possible if you leave an employer, someone could sue you one or two years later, and if you didn’t have a tail policy, you would not be covered even though it happened two and a half years ago. Let’s kind of dive into the cost of these types of things. If you have claims made policy, which will be the vast majority of dental associates will have, after the contract ends, for whatever reason, it’s terminated, or it just ends, and it’s not renewed, or maybe someone is in breach of contract, but for whatever reason, once the contract terminates, you’ll have to get a policy that covers the gap in between your last patient that you see and then the last date that you can be sued.
How to Decide?
For most states, it’s two years. There are some exceptions for people who are no longer minors. And it’s usually from the date you either knew or should have known of the malpractice event. It’s certainly possible that someone may not even know that malpractice occurred for a year or two. And in that scenario, that’s how the dentist can be sued after the fact. So, you’d have to purchase a tail policy, it’s also called gap insurance or extended reporting, but it’s mostly known as tail insurance in the industry. You’d have to purchase that prior to the end of your current contract, and then it would be for a set amount of time.
So, you can get a one-year tail, two-year, five-year, or unlimited. Obviously, the longer the tail, the more expensive it is, but most policies will cover somewhere between three to five years because people figure that’s far off enough to cover any kind of claim that could be made. Now, as far as cost goes, tail is generally about twice what your annual premium is. If your annual premium is, let’s just say 3000 a year, then your tail cost would be around 6,000. The shorter you’re with the employer maybe all the way down to 1.5 times what your annual premium is. Whereas if you’ve been there a very long time and you want an unlimited tail, it could go all the way up to 3 times what your annual premium is. But a good rule of thumb is it’s about twice.
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