Choosing your medical malpractice policy may seem dull, but it can be one of the most important career decisions you make. When even frivolous lawsuits can cost tens of thousands of dollars to defend yourself against malpractice suits, and awards can cost you even more staggering sums, insurance is an essential factor in your financial well-being. Deciding between a claims-made and occurrence policy may seem simple, but this decision involves many factors to consider.
What’s the Difference?
First, it’s important to understand what insurance companies mean when they offer claims-made or occurrence policies. Occurrence policies are the more straightforward type. These plans cover any incident that happens while the policy is in effect, even if you cancel the policy before the claim is reported. That means that even if you switch insurers or stop carrying malpractice insurance, your old insurance company defends you if you get sued over an old incident. Occurrence policies are not available in every state.
Consider the Cost
On the surface, an occurrence policy may seem like the safest option due to the permanent coverage it offers. However, that added peace of mind comes with added cost. Occurrence policy premiums can be up to twice as expensive as those of a similar claims-made policy. Claims-made policies also typically start with a very low initial premium that gradually increases over the course of five years until the policy matures. That introductory premium can be particularly helpful for new practitioners who are still building their patient bases or otherwise dealing with higher costs and lower pay.
Chart Your Career
Claims-made policies tend to be better for people planning on a long career as a health care provider because of that all-important tail. The cost of a long tail can be quite high if you switch careers early, but most companies offer free tails for providers who retire or become disabled if their policies have been in effect for a certain amount of time. If you think you may only need malpractice insurance for a few years or plan to stop practicing before you reach retirement age, the peace of mind offered by an occurrence policy may be worth the initial extra cost.
Ponder the Policy Changes
The ongoing nature of claims-made policies can provide benefits as well as drawbacks. Claims-made policies begin with a retroactive date, which usually refers to the first time you purchased the insurance. Your original retroactive date tends to remain in effect even if you switch companies, so you’re not locked into a specific insurance provider. Most companies apply your current coverage to any claims made after the retroactive date, so as your career progresses and you purchase more coverage, your early claims get that added benefit. In contrast, occurrence policies only provide the amount of coverage that was in effect at the time. This can leave you on the hook for some costs if you initially bought too little insurance or if your state’s laws change to allow more damages.
There’s no one-size-fits-all answer when it comes to choosing a malpractice insurance policy, so it’s important to take your time and consider the benefits and drawbacks of each type of plan. Spend some time thinking about your career plan and talking with your mentors before you make a decision about whether to buy a claims-made or occurrence policy. Just be sure to buy one of them before you start your practice.