Should I Get A Claims-Made or Occurrence-Based Insurance Policy?

Jun 14, 2022

Should I Get A Claims-Made or Occurrence-Based Insurance Policy?

Claims Made v. Occurrence Based Insurance

Published June 14, 2022

We get asked this question a lot. There is no right or wrong answer, but here are a few things you should consider when making your decision.

What is Malpractice Insurance:

Nobody is perfect; mistakes happen. Malpractice insurance is liability insurance purchased by healthcare professionals to protect against patients who sue them for harm caused by alleged professional negligence or intentional harm. All medical providers should have some form of malpractice insurance, in fact, many states require it. Chances are, you will be sued (whether you deserve it or not) at least once during your career. Lawsuits, especially if determined adversely, can be extremely expensive. Malpractice insurance (just like car insurance) is there to help cover the costs.

The recommended policy limits for malpractice insurance in the dental industry are $1 Million per occurrence/claim and $3 Million in the aggregate.

The two most common types of malpractice insurance policies are Claims-Made and Occurrence-Based. It is important to understand the differences between these two policies and choose the one that is most appropriate for your particular set of circumstances.

Occurrence-Based Malpractice Insurance:

What is it: An occurrence-based policy will cover any claims relating to an incident that occurred while the policy was in effect, regardless of whether the policy was in effect when the claim is made. Therefore, if a patient files a claim for something you did 5 years ago (when the policy was active), and the policy has since expired, you will still be covered under the policy.

Policy Limits: With an occurrence-based policy, the policy limits reset every year the policy is active. This means that a policy with limits of $1 Million per occurrence and $3 Million in the aggregate will pay those amounts each year the policy is active.

Claims-Made Malpractice Insurance:

What is it: A claims-made policy will only cover claims made during the period when the policy was in effect. Therefore, if a patient files a claim after the policy expires, the claims-made policy will not cover the claim, and you may be forced to pay out of pocket (cue Allstate’s Mayhem). For this reason, many employers will require former providers to purchase a “tail” policy. A tail policy is an extended reporting period endorsement to your claims-made policy that essentially extends the time period during which claims can be made under the policy for a certain amount of time after the policy expires. It does not extend the policy term.

Policy Limits: The policy limits for a claims-made policy are fixed for the lifetime of the policy. Therefore, if your coverage period is five years, you will only be covered up to a maximum of the policy limit for the entire 5-year period. The limits do not reset every year like they do with an occurrence policy. Once the policy limit is reached, you will not be covered for any additional claims until you purchase a new policy.

How much does it cost:

As with all insurance, the costs associated with these policies vary based on a number of factors such as, location, amount of coverage needed, specialty, industry risk, local laws, and prior claims history. That said, claims-made policies typically cost less than occurrence policies in the beginning, but rates rise as the policy matures. With a claims-made policy, you should also factor in the cost of a tail policy (usually anywhere from 200-250% of your claims-made premium—paid as a one-time fee when the policy expires). Occurrence policies are typically more expensive in the beginning, but rates do not increase as the policy matures. In the end, price should not be a determining factor because both policies end up costing about the same.

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