Understanding Dental Insurance for Providers (Occurrence v Claims Made)

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 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.

What if it’s based on a policy?

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, 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 insurance? 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.

Who pays for tail insurance?

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 insurance 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 insurance 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.

What are the prior acts and prior acts date coverage in an occurrence based?

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.

What is the coverage cost of occurrence?

Now, you’re probably thinking, alright, well, why would one choose occurrence versus claims-made? Obviously, occurrence-based is better if you don’t have to purchase tail insurance. 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 tail insurance, 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 insurance expense on 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. 

Let’s Do the Math

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. In comparison, claims-made is 3000 plus usually a 6,000 tail insurance. 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 tail insurance. 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.

What is Claims Made Insurance for a Dentist?

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. Claims-made policy means a policy must be in effect when a claim is made. If you’re an employee and you leave an employer, there is a gap in between the last patient you see for that employer and then 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 when minors become adults and that type of thing.

But let’s just 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, and that’s called tail insurance. If you have a claims-made policy, you need tail insurance. An occurrence-based policy just means a policy must be in effect when the incident occurs. No tail insurance is necessary for an occurrence-based policy.

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 what your annual premium was. 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. 

When Do You Need to Get a Tail Insurance?

Normally, the employer would require that the tail insurance policy would be secured prior to the end of the employment relationship between the two parties. If the employer says it’s your choice as far as 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’re going to pay the premiums. Then obviously, you want an occurrence-based policy because you won’t have to pay for tail. 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. 

Negotiations Tips on How Not to Pay for Tail Insurance

A couple of ways to handle that. One, you can negotiate in advance to try 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 maybe forgiving an amount of it, depending upon how long you’ve been there. Let’s say you have a three-year initial term, then we would say, alright, for every year that the dentist stays employed, one-third of that tail cost is then forgiven.

In that way, if you’ve been there for three years, then you wouldn’t have to pay for any of the tail after you left. That’s been an effective way of getting them to cover some tail insurance costs. Another one 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 job, most of the time, they’ll just 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 is if your new employer pays for your old tail insurance, and that’s called nose coverage. It’s not prohibitively expensive for most general dentists. Obviously, if you get into some subspecialties into surgical specialties, that type of thing, it can be more expensive. But it’s not a kind of break-the-bank type cost. 

A Lawyer’s Advice About Tail Insurance

You do not want to go on without a tail policy if you have claims-made coverage. I have had a few people in the past that just said, you know what, I don’t want to pay the tail 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. At the same time, a malpractice claim could be many multiples of that potentially. Plus, I just would hate to have that kind of hanging over anyone’s head as well. Anyway, that’s a little primer for claims to make coverage for a dentist.