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What should I know about malpractice insurance?

Chelsey Tucker graduated with a Bachelor of History degree from Metropolitan State University in 2019. She now writes about insurance with her specialty being life insurance and has been quoted...

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Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years. He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella...

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Reviewed byDaniel Walker
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UPDATED: Mar 19, 2020

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malpractice insuranceWhether you are starting practice, a shareholder or are employed by a self-insured company, it is important to know everything you can about malpractice insurance.

There is plenty to know, and many physicians learn the hard way. At the very least, you should learn what your malpractice insurance does cover.

If you are looking to save money on your malpractice insurance policy, then it is time you compared insurance quotes online. Compare insurance rates from all the top insurance companies in the nation. Enter your zip code above to start comparing rates!

1. Types of Available Policies

  • Claims-Made
  • Occurrence

As stated above, liability insurance can come in two flavors: either claims-made or occurrence. In the current market, that vast majority operate under claims-made liability insurance, though some companies may still provide the alternative.

Claims-Made Insurance

This type of business insurance will over cover any incidents which both occurred and were claimed in the duration of which you were insured with them. In other words, both the filing and the occurrence of the incident must occur within the duration of the policy’s effect.

Dropping a claims-made policy will not allow you to be covered for suits filed after dropping it, unless you pay tail coverage, or an endorsement for an extension on reporting. This is very expensive — often triple what you would pay for a yearly premium — but if you wish to be insured for an incident arising later, it is a necessary expense.

If you intend to switch carriers, ensure that you ask the new one for a nose coverage quote. Compare this with the expense for buying tail coverage from your previous insurer. Note that whether you purchase nose or tail coverage, you should ensure that the date will cover the period of your previous insurance policy. As always, it is important to clarify what your coverage terms are, which include the aggregate limits.

These limits are the limits of which the policy will pay for the entire group of claims combined during a predetermined period. Yearly policies include limits for a year, but occasionally these limits will apply to all of the years in which the policy was active.

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Occurrence Insurance

Occurrence insurance claim

This type of policy will cover incidents that occurred while the policy was active, but you do not have a specific window in which you have to file the claim. In other words, if you had an occurrence-type policy during the year 2007, and someone filed a claim in 2011 for something that occurred during 2007, you will be fully covered under the policy for the claim, even if you dropped your insurance since then.

Due to the lifetime coverage, occurrence policies are typically more expensive than their counterpart for the first years of coverage. This is also because the potential for claims will gradually increase as you continue with the policy. The initial premium on claims-made insurance could start out inexpensive — see “What Determines Premiums?” section below — such as 10 percent to 30 percent of what is know as a mature rate.

After this, the premium grows annually for a varying period, such as three to five years, and then it reaches its mature rate. When you compare the varying costs of malpractice insurance coverage, make sure to find out the amount in which the premium will grow after the first year.

2. Will Your Policy Insurance Match Your Practice?

The majority of these business insurance policies will cover limits ranging between $100,000 to $300,000 or $1 million to $3 million. The starting amount is the maximum amount of money your carrier is willing to pay for a single claim while you are covered under the policy, which is typically for a year. The ending amount is the amount of money the company is willing to pay for all claims which occur during this same policy period. If you have any claims filed against you, it is your responsibility to pay any expense which exceeds the limits of your policy.

It is also important for doctors who are just beginning to practice to have good limits. Ideally, your limits should be more or less what other practitioners have. While you may feel better having higher limits set, this means you will wind up as the deep pocket during a lawsuit naming another defendant. In other words, your limits should prevail based on your specialty and your geographic location.

Some states have caps on the amount of damages that a policy can award to a person, and these states include:

  • California
  • Florida
  • Texas

In these states, you may not necessarily need such high limits due to these caps.

Whether you are a shareholder or the owner of a practice, you will want to ensure that your policy applies to both your corporation and your employees. Specifically, clarify whether the limits apply to each individual person or if they are shared by all.

3. What Determines Premiums? 

Carriers often estimate how much they will need to use for claims, and then this total is broken up among the companies they ensure, which spreads the risk around and calculates the annual premiums. Additionally, your malpractice premiumsgeographic location, specialty and history of personal claims will also have an effect on your premium. Some companies analyze the losses by specialty, territory, state and trend, with each specialty standing on its own.

Additionally, prior to the settlement of claims is the challenge of setting the premiums for medical malpractice. Even once you know how many claims occurred in a given year, there is no way to know how much the cost of the claims will be until its resolution, which is — on average — about three and a half years later. As an example, in the practice of oncology, this is comparable to buying medicine for the patients and having to invoice them upon delivery, but not knowing how much the medicine would cost you for three and a half years.

These are the basic things you will need to know when obtaining malpractice insurance, so use them to your advantage. Enter your zip code below to compare rates on malpractice insurance and choose the best policy that fits your business. Don’t get caught unprotected and suffer the consequences.

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