What is Claims Made Insurance for a Dentist? | Dentist Insurance

What is claims-made insurance for a dentist?  Every dentist needs a malpractice policy while they’re practicing. And there are two common types of malpractice insurance: claims-made and occurrence-based.

Two Common Types of Malpractice Insurance

Claims-made policy means a policy must be in effect when a claim is made. If you’re an employee and leave an employer, there is a gap between the last patient you see for that employer and the last day they sue you. That’s the statute of limitations. And generally, it’s two years in most states; it varies from state to state. And there are also exceptions for minors becoming adults and that type of thing. But let’s use two years as an example. If someone has two years to sue you, then if you had a claims-made policy, you need an additional policy that covers that gap, called tail insurance. If you have a claims-made policy, you need tail insurance. An occurrence-based policy means a policy must be in effect when the incident occurs. No tail insurance is necessary for an occurrence-based policy. 

Occurrence-Based vs. Claims-Made Policy and Tail Insurance

Now, the main difference between the two is cost. An occurrence-based policy is about a third more expensive per year than a claims-made policy. And then, after a claims-made policy ends and you must purchase tail insurance, tail insurance is about twice your annual premium. So, if you had a $3,000 annual premium and you had to pay for tail insurance under a claims-made policy, it would be a $6,000 payment, depending upon who’s responsible for it, that would have to be paid. That’s a one-time payment. It doesn’t go on year to year. You just pay it all upfront. 

Who Pays for Tail Insurance?

Usually, the employer would require that the tail insurance policy be secured before the end of the employment relationship between the two parties. If the employer says it’s your choice regarding what policy you want to use. It will depend on who’s paying for it. If the employer says, I don’t care if it’s an occurrence or claims-made, we will pay the premiums. Then obviously, you want an occurrence-based policy because you won’t have to pay for tail insurance. Most of the time, you don’t get a choice. And most of the time, it is claims made. And most of the time, the employer will require the dentist to pay for tail insurance.

Some Practical Tips in Handling Insurance Costs

A couple of ways to handle that. One, you can negotiate in advance to get the employer to cover the cost of tail insurance. If they’re unwilling to cover all the costs, one thing that we’ve been successful with is forgiving an amount of it, depending on how long you’ve been there. Let’s say you have a three-year initial term. Then we would say, alright, for every year the dentist stays employed, one-third of that tail insurance cost is forgiven. That way, if you’ve been there for three years, you wouldn’t have to pay for any of the tail insurance after you left. That’s been an effective way of getting them to cover some tail insurance costs.

Another would be if you were in a state, used an insurance company, switched jobs, and the new job uses the same insurance company as the old one. Most of the time, they’ll roll over your old policy into your new one. In that way, you wouldn’t have to pay for tail insurance. 

And then the third way of getting out of having to pay for tail insurance is if your new employer pays for your old tail insurance, and that’s called nose coverage.

Important Reminder if You Have a Claims Made Insurance Policy

It’s not prohibitively expensive for most general dentists. If you get into some subspecialties into surgical specialties, that type of thing can be more expensive. But it’s not a break-the-bank type cost. If you have claims-made coverage, you do not want to go on without a tail insurance policy. I have had a few people who just said; you know what, I don’t want to pay the tail insurance costs. I’m willing to accept the risk. And it just seems like a foolish risk to take $6,000 to cover your tail insurance.

In comparison, a malpractice claim could be many multiples of that potentially. Plus, I would hate to have that hanging over anyone’s head. Anyway, that’s a little primer for claims to make coverage for a dentist.

Other Blogs of Interest

• What is Occurrence-Based Insurance for a Dentist?
• What is Dental Malpractice Insurance, and How Does Coverage Work?

Should a Dentist Choose Claims Made or Occurrence Insurance?

Should a dentist choose occurrence-based or claims-made coverage? First, the two most common types of malpractice insurance for dentists are occurrence and claims-made. And if you are an employed dentist with the practice, the practice will likely use claims-made. Let’s 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. 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 yearly. They should pay for that. 

Insurance Considerations for Dentists that are Employed

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 will be a statute of limitation. 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. 

Difference Between Claims-Made Policy and Occurrence-Based

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. You don’t need tail insurance with an occurrence-based policy, but 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. 

Tail Insurance

However, you would be responsible for paying for tail insurance. And a good rule of thumb is tail insurance costs about twice your annual premium. Let’s say an annual premium of $4,000. Then if you’re responsible for paying for tail insurance, 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 insurance 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 insurance.

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. We can do occurrence-based or claims-made. It’s up to you. Well, if it’s up to you, 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. 

Occurrence Coverage for a New Dentist

Now, maybe you’re an independent contractor, and whoever you’re going to work with states, you’re responsible for paying for the annual premium. If you get claims-made tail insurance, 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, and you can choose between either policy. In that scenario, it would make sense to get an occurrence-based policy. 

Let’s Compute Which One Is Better

As I said before, let’s say you have a $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, whereas 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 insurance, maybe a little less. 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. 

Claims-Made Policy Makes Sense if You Intend to Stay for a Long Time With an Employer

Now, if you’re staying with an employer for an extended period or as an independent contractor, working for someone for an extended period, let’s say it’s ten years. Well, in that scenario, you would have to do the math of, alright, 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, 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 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 and Tail Insurance 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. 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 actually made. You may terminate a contract and leave an employer, but there will still be a statute of limitation. A period that somebody could sue you for malpractice, and in most states, it’s two years. There are exceptions, but I’ll 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 a tail insurance policy to be at least two years. 

The Contract States Who Pays for Tail Insurance?

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 stating that the employer will provide the underlying annual premium. It’s how much it costs to insure you yearly. 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. 

Most of the time, the dental practices will put the burden to pay the tail insurance on the dentist leaving the practice. They would use one policy over another because the 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. 

How Much is Tail Insurance?

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 multiply that times two, and that will be how much you must pay for tail insurance. 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 insurance policy, which will cover you indefinitely. That’s the way to go. 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. 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 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 insurance; that way, you’re covered. 

Cost is Specialty Based

How much it costs kind of varies based upon specialty. If you’re 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 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 insurance 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, and, 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 insurance 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 a claims-made policy, the vast majority of dental associates will have, after the contract ends, for whatever reason, it’s terminated or just ended. 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 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 insurance 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 before the end of your current contract, which would be for a set amount of time.

So, you can get one-year tail insurance, two-year, five-year, or unlimited. Obviously, the longer the tail insurance, 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 claim that could be made. As far as cost goes, tail insurance is generally about twice your annual premium. If your yearly premium is, let’s say, 3000 a year, then your tail insurance cost would be around 6,000. The shorter you’re with the employer may be down to 1.5 times your annual premium. Whereas if you’ve been there for a long time and want unlimited tail insurance, it could go up to 3 times your annual premium. But a good rule of thumb is it’s about twice.