Dental Claims Made or Occurrence Insurance? (Professional Liability)

Should a dentist choose occurrence-based or claims-made coverage? First, occurrence and claims made are the two most common types of malpractice insurance. And if you are an employed dentist, the practice will likely use claims-made. Let’s go through the differences between the two and then maybe which one would benefit you. Suppose you are thinking of signing an employment contract. In that case, a section in the contract will discuss malpractice insurance. The employer absolutely should pay for your underlying premium if you’re an employee. An underlying premium is just how much it costs to insure you annually.

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 made. You could leave an employer, and then there will be a statute of limitations. It’s a period that someone can sue you. In most states, it’s two years, but there are exceptions. A few states are a little longer than that, but let’s use two years as an example here. If you had a claims-made policy, you would need tail insurance, which covers the gap between when you leave, and the last day somebody can sue you. 

A claims-made policy versus an occurrence policy is a differentiator on price. With an occurrence-based policy, you don’t need tail insurance. Still, it’s about a third more expensive than a claims-made policy. A claims-made policy would be a third cheaper than an occurrence-based policy. However, you would be responsible for paying for tail insurance.

Average Cost of Tail Insurance

A good rule of thumb is tail insurance costs about twice what your annual premium is. Let’s say an annual premium of $4,000. Then if you’re responsible for paying for the tail, it would be around $8,000. Now, that’s a one-time cost. It’s not yearly. And you would pay that before the contract’s expiration, 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. You would rarely have an employer say to you. We can offer you both policies, and we can do occurrence-based or claims-made. It’s up to you. Well, suppose it’s up to you. In that case, you should get an occurrence-based policy to not 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. 

Considerations If You are Working as an Independent Contractor

Now, maybe you’re an independent contractor. Whoever you work with states, you’re responsible for paying for the annual premium. If you get a claims-made tail, that would be a scenario where you would have to decide. Think of it this way: if you are working for someone as an independent contractor, and let’s say you’re only going to work for one year, you can choose either policy. In that scenario, it would make sense to get an occurrence-based policy. Let’s 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, the contract ends. 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 an extended period, or as an independent contractor, working for someone for a long period, let’s say it’s ten years. Well, in that scenario, you would have to do the math. If I’m paying a third more per year for ten 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. 

In my opinion, expecting to work an extended period, like 5 or 10 years with one practice, is foolhardy with the proliferation of all these corporate dental practices swooping in and buying up all these dentist-owned practices. And places that were great to work with before are now maybe not so great to work at or with. So I would not go into any relationship expecting it to last more than 5 to 10 years. It’s just doubtful 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.

Other Blogs of Interest

• Claims Made Insurance for a Dental Associate Explained: Same as Occurrence Claim for Dentists?
• What is Tail Insurance for a Dentist?: Malpractice Insurance for Dentists

How Much Does Tail Insurance Cost for a Dentist? | How Much is Tail Malpractice 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 standard medical malpractice policies for dentists, occurrence-based or claims made. An occurrence-based policy requires 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 made. You may terminate a contract and leave an employer, but there will still be a statute of limitations. 

A period that somebody could sue you for malpractice, and in most states, it’s two years. There are exceptions, but I’ll just say it’s two years for these purposes. 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, you need to figure it out and ensure that language is inserted before signing the agreement. The agreement 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 they utilize and, if it is a claims-made policy, who’s responsible for paying for tail insurance.

Dentist Malpractice Insurance Comparison  

Most of the time, dental practices will put the burden on paying the tail insurance on the dentist leaving the practice. The reason they would use one policy over another is that an occurrence-based policy is generally about a third more expensive than claims-made. And suppose 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. In that case, they’re saving a decent amount throughout an employment relationship between them and a dentist. 

So, how much does it cost if you are responsible for paying for tail insurance? 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 yearly. And you just multiply that times two, and that will be how much you must pay for a tail. It’s a one-time payment, so you don’t have to pay tail insurance yearly. It’s a one-time payment, and you’re covered for however long a policy you decide to go with. I would suggest if they had, and will have, an unlimited tail policy, which will just cover you indefinitely. That’s the way to go. 

States Statute of Limitations 

As I said, there are some exceptions, and then there are some longer statute limitations based on your state. And so, it would be a bad idea to get a policy that didn’t cover the entire amount. Suppose you get sued, and there is no insurance to cover you. In that case, you may be personally reliable for those damages if it gets to that point, and then you’ll have to pay for your attorney and go through that.

And then, the settlement will come out of your funds. So, it just makes sense to pony up by the indefinite tail; that way, you’re covered. How much it costs kind of varies based upon specialty. It will be a little bit less if you’re just doing general dentistry. It would be more expensive if you’re an endodontist or doing some more surgical procedures. But I guess I would consider a reasonable amount for insurance is somewhere between 2,000 to 4,000 for an annual premium, which 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 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 before the termination of the contract. So, before the agreement is terminated, you must purchase that policy. And then, the employer would require you to prove 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 occurs. The other coverage is called claims-made. In that scenario, tail insurance is necessary because it states that a policy must be in effect when the claim is made. 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. Suppose you have a claims-made policy, which the vast majority of dental associates will have after the contract ends, for whatever reason. In that case, it’s terminated, or it just ends, and it’s not renewed, or maybe someone is in breach of contract. Still, for whatever reason, once the contract terminates, you’ll have to get a policy that covers the gap between the last patient you see and 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, also called gap insurance or extended reporting, but it’s mostly known as tail insurance in the industry. You’d have to purchase that before the end of your current contract, which 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. Still, most policies will cover somewhere between three to five years because people figure that’s far off enough to cover any claim that could be made. Now, as far as cost goes, the 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 down to 1.5 times what your annual premium is. Whereas if you’ve been there a very long time and want an unlimited tail, it could go up to 3 times your annual premium. But a good rule of thumb is it’s about twice.

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 coming out of training and just graduated from dental school, you probably haven’t had to think about dental malpractice insurance before. Still, when you sign your new employment contract, there will 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 go through both of those, and then we’ll talk a little more in-depth about occurrence-based coverage. A claims-made policy 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 between when they leave, and 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 adults and others are in different states, let’s take two years, like an average amount. 

If you leave the employer and someone can sue you for two years, you need a policy that covers the gap between those dates, called tail insurance. Now, who must pay for a tail? Well, that’s going to be dictated by the terms of the employment agreement. It’s going to state that the employer will most likely pay for the underlying coverage, meaning they’ll pay the annual premium. So, how much does it costs to cover the dentist on a year-to-year basis?

Who Pays for Tail Insurance

And then, after the contract is terminated, who pays for tail insurance? It will state expressly in the contract. If it doesn’t, it needs to. Tail insurance is generally around twice the annual premium to cover dentists. Whatever they must pay every year, you multiply that times two, and that’s a reasonable 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 yearly. 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. And then, that’s a little more expensive the more coverage you have. I would suggest just getting the most extended amount of coverage. Even though statute limitations on a claim are two years, just getting a one-year tail puts the dentist at risk. 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. 

Advantages of Occurrence-based Policy

Now, claims-made is the most common type of malpractice insurance used by dental practices. However, some use 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, the incident will obviously occur while the dentist is employed with the practice, and no tail insurance is necessary. So, you do not have to worry about claims after the employment relationship ends if you have an occurrence-based policy.

Now, you’re probably thinking, well, why would one choose occurrence versus claims made? An occurrence is better if you don’t have to purchase a 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 malpractice insurance.

Additionally, they would put the onus on the dentist to pay for a tail. They save a bunch of money rather than paying a third more per year for an occurrence coverage and no tail expense. So, if you have the choice, there’s no reason not to go with the occurrence coverage if the employer pays for it. Most employers will not leave it up to the dentist which policy to choose.

Scenario for an Independent Contractor

They’re just going to have a policy, and then all the providers in 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 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 are 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 stay with an employer for a long time, claims-made might make more sense. You must do the math, shop for the policies, and see the price differences between the two. Dental malpractice insurance is not prohibitively expensive. Some of the subspecialties in surgery and things like that will be more. Still, for the most part, dental malpractice is reasonable.