Decoding professional liability insurance terms

Insurance jargon isn’t your native tongue—and it isn’t expected to be! But once you decode insurance terms and processes, you can better understand your coverage options.

Start by breaking down malpractice policy types and how timing plays into claims handling.

What's the difference? Claims-made vs. occurrence-based

Insurance carriers set the conditions for when and how they respond to malpractice claims. There are two common types of coverage:

• Claims-made and reported                   

• Occurrence-based

The main difference between these two types is when the incident occurred and when the claim is filed.

Your needs and plans can inform your cost-benefit assessment:

• Policy cost. Claims-made policies usually have lower premiums, but they increase over time as your risk grows. Occurrence policies usually have higher premiums because you pay upfront for the “tail” or extended reporting coverage to protect against potential liabilities occurring outside of the dates in which the policy is in force.
• Claim limits. With a claims-made policy, limits reflect the time the claim is reported. With an occurrence-based policy, limits reflect the time the claim occurred, not when the claim was filed.

Claims-made and reported benefits

With a claims-made and reported policy, you’re covered for:

• Claim incidents that occur during the time the policy is in force.
• Claims that are reported while the policy is in force.

Note that your coverage remains in force when you pay premiums for your new policy and any subsequent renewals. Each year the policy is continuously renewed, your coverage period for claims is extended. Some reasons to choose claims-made coverage include:

• Lower premiums. Since the insurance carrier does not need to anticipate the risk of future claims made outside of the policy dates, there is often significant premium savings for claims-made and reported coverage.

• Other cost savings. Limits for claims are those in force at the time the claim is filed, which ensures you benefit as liability limits increase in response to inflation and the rising cost of practice.

• Insurance carrier solvency. By reporting claims within a current policy term, you don’t have to worry about who insured you in the past or if they are still in business—you’ll be covered.

There is no need to prepay the cost of possible future claims at every renewal. However, when you select a policy with claims-made and reported coverage, you can opt to maintain protection for delayed claims if you want the flexibility to change carriers or make a career transition. That’s when tail coverage can apply.

How tail coverage works

Tail coverage, also known as “extended reporting endorsement,” can provide protection for claims filed after your claims-made policy is canceled or expires. Tail coverage allows you to report claims for a specified period of time (one year, multiple years or indefinitely depending on the insurance contract) for incidents that occurred while the policy was in force.

Tail coverage does not extend the length of time the policy is in force or require ongoing malpractice coverage. It simply allows for coverage of claims that are filed after the policy’s expiration date, so long as the incident took place while the policy was in force.

The advantage of tail coverage is that it’s an added endorsement to your policy that you don’t pay for until you actually need it. You may want to consider adding tail coverage when you:

• Switch insurance carriers (Note: If you change to another claims-made policy, you often will have the option to move your coverage with you without purchasing tail coverage).
• Enter a postgrad dental program and want to switch from personal coverage to your program’s liability coverage.
• Become disabled to the point where you can no longer practice (some carriers may wave the tail coverage premium due to disability).
• Retire (although many carriers will waive the tail coverage fee if the policy cancellation is due to retirement).

Occurrence-based coverage

With an occurrence-based policy, you’re covered for:

• Claims reported for occurrences during the period the policy is in force.
• Claims for occurrences during the policy that are reported after the policy ends.

Some reasons to choose occurrence coverage include:

• Simplicity. Occurrence-based coverage can be less complicated than claims-made coverage since there is no need to consider or secure tail coverage.
• Security. Even if the claim is filed years after the policy has expired or been canceled, you can still report the claim as long as the incident occurred while the policy was active.

Insurance terminology can feel burdensome. If you need assistance interpreting or understanding any aspect of your policy, talk to your trusted agent or broker.