[Editor's Note: Today's guest post was submitted by Max Schloemann, a medical malpractice insurance broker and CEO at MEDPLI, We have no financial relationship.]
Most physicians realize that medical malpractice insurance is a must-have. If a claim is made against you, protection provided by your carrier against damages and attorney fees will keep you afloat. However, there are pitfalls to navigate when buying your policy, dangers I have become well acquainted with in my time as an insurance broker. Here are four pitfalls to avoid when purchasing medical malpractice insurance.
#1 Don't Forget Tail Coverage
Finally realizing that fantasy of opening your own private practice or taking that dream job at a large hospital system? You’ll need tail insurance, and, most likely, you’ll be the one paying for it.
Tail insurance covers you for a specific time period, allowing you to report claims in the future for incidents that occurred during the time between your Retroactive Date and your last day covered on the claims-made policy. Tail coverage protects you against claims made for your Prior Acts Period (the time between your retroactive date and last day of active claims-made coverage). Many physicians assume they are covered for post-employment claims under their previous employer’s policy, but that’s not necessarily the case.
The best thing you can do when you take a new job is to read your contract carefully and see what it states about tail insurance upon resignation, then immediately set aside an amount to cover it. How much to budget is based on multiple factors, but an easy rule of thumb is to take your current policy’s premium and double it. So, if the cost of your medical malpractice policy is $25,000, you should expect to pay a one-time premium of around $50,000 when you leave.
It's easy to assume you won’t need tail coverage, but you might regret not purchasing it. Take the example of Dr. T, a neurosurgeon in Texas. He was in the process of leaving his practice and discovered he was responsible for tail coverage. Not only that, but his tail policy at the time was $100,000. Dr. T always practiced safe medicine and had never been sued, so he assumed he didn’t have much risk. If anything were to happen, he figured he’d pay his own legal fees to defend himself. Shortly after his transition, a claim was opened, and he ended up paying $200,000 out of pocket in attorney’s fees for a five year lawsuit that he ultimately won.
The fact of the matter is, no matter how talented and liked they are, any physician is at risk of losing financially if they don’t have adequate coverage.
Another warning – don’t get stuck buying tail insurance at a higher premium at the last minute. An OB/GYN from Chicago recently came to me because the practice she was leaving offered her a tail insurance policy for $150,000. Because she had planned to find tail coverage well before her leave date, as her broker I had ample time to find her a policy for the same coverage that saved her $50,000. Sometimes your employer may neglect to remind you that you need tail coverage until the final days of your contract. Don’t let failing to plan for the future cost you.
#2 Make Sure You're Covered by a Claims-Made Policy
If you’re ready to drop your current insurance carrier, make sure you are covered by a claims-made policy, not a claims-paid policy. The difference could save you significant money and time, and many physicians don't realize they’re under a claims-paid policy until they’re facing the financial consequences.
Under a typical claims-made policy, you can usually cancel your policy with your carrier at any time without penalty. Add proper tail insurance, and you’ll be covered when a claim is opened, even after you’ve ended the policy. However, under a claims-paid policy, your medical malpractice carrier is only going to cover you as long as you are insured with them. That means that if you have an open claim with your carrier, whether the claim has merit or not, you could be stuck with them for a very long time. Even if a carrier raises their rates through the roof and you want to find better, cheaper coverage on the open market, you can’t leave the carrier until the claim is settled.
To add to this, you’ll likely be required to decide on your insurance options well before your policy period actually starts. Insurance carriers usually send out renewal packets in the early fall and require physicians to actively opt-out if they don’t want to renew coverage for the next calendar year. That means that you’re being asked a full year in advance to decide if you want to opt-out or renew coverage at premium rates that have not yet been calculated or disclosed by the carrier. Compound this early, cumbersome opt-out process with the issue of an open claim, and you might be obligated to continue to pay premiums to your carrier for far longer than you feel comfortable.
Don’t be dazzled by competitive premiums offered under claims paid policies; they often end up costing you more in the end. California physicians need to be especially aware of this potential pitfall, where claims paid policies are more common.
#3 Your Carrier Is Financially Weak and You Don’t Realize Until It's Too Late

Max Schloemann
Taking the time to ensure that your malpractice insurance provider is financially solvent is one of the best investments you can make to avoid an unpleasant surprise down the road.
In 2019, doctors in Texas found themselves scrambling for malpractice coverage when Capson Physician Insurance Company was placed into rehabilitation by the state. Four months after the announcement, the company was placed into liquidation. At the outset, it seemed like a thriving enterprise, but it ended up leaving thousands of health care providers without coverage.
What are the risks you could face when your carrier folds?
- Health insurance companies won’t pay out submitted claims if you can’t demonstrate you have the minimum coverage required at the time of service.
- Healthcare facilities prohibit you from working for their organizations if you can’t provide proof of malpractice insurance coverage.
- If you have an open claim at the time your carrier goes under, they won’t be able to defend you, nor pay damages.
- Other insurers will be less likely to take you on, making it difficult to find affordable coverage.
Capson isn't the only carrier in recent memory that crashed and left thousands of physicians clambering to find new coverage. In the last 10 years, carriers such as Oceanus Insurance Company, RRG, and Professional Liability Insurance Company of America (PLICA) have also had similar financial insolvency issues that ultimately made it more difficult for doctors to get adequate coverage.
You can avoid linking yourself to a financially weak carrier by doing your research. Insurance companies are given ratings based on their long-term prospects, among other things. The leading independent analyst is A.M. Best Company, whose ratings range from A++ to C-. Your safest bet is to always avoid carriers that have poor ratings.
#4 Assuming Your First-Year Claims-Made Rate Will Remain the Same When It Will Actually Increase Over a 4-5 Year Period
If you have a good broker, he or she will explain this to you very clearly and carefully: all things even, prepare for your premium to rise over the length of your policy.
That’s because carriers are giving you a “break” at the beginning of your claims-made policy with something called a step-factor. If you’re a brand new doctor, you’re just starting a private practice, or you just tailed out, your new carrier will provide you with a new retroactive date for your policy. Since it takes time for issues to be discovered and claims to be opened, it's not likely you’ll be much of a risk in the first year of your policy. Therefore, your rate will be much lower.
You can expect to pay about 25% of your mature premium in the first year, then see it double in your second year, increasing each year of the policy until it reaches maturity. That means if you purchase a policy that matures at $10,000, you’ll pay around $2,500 in premiums your first year, $5,000 in your second year, $7,000 in your third year, $9,000 in your fourth year, and $10,000 in your fifth year when your policy finally matures.
With that said, there are additional components that can affect your insurance premium rates from year to year. Carriers use multiple factors to determine your new premiums, some of which are out of your control, like a rise in the rate of claims experienced by providers practicing in your specialty. Always plan for your premiums to rise from year to year and budget accordingly.
Navigating the world of medical malpractice insurance can be daunting, for new and seasoned providers alike. Make sure to find an independent broker who can work with you to shop for the best options available to you right now. While insurance agents work exclusively with one insurance company, independent brokers are able to provide you with quotes from multiple carriers and find discounts and programs that are financially beneficial to you as the provider. In the end, a specialized, knowledgeable independent medical malpractice insurance broker is your best ally to get you the most favorable rate.
What other pitfalls should you watch out for when purchasing malpractice insurance? Comment below!
I would think that any discussion of malpractice insurance should also always include occurrence policies as an option. Seems very weird that this is omitted. These policies are not uncommon in my area (NYC metro). Higher initial cost, but no need to ever worry about a tail… which can be prohibitively expensive, and undo the early year savings.
I agree. An occurrence based policy is way superior and omits the need for tail coverage. Should certainly be discussed and I’m surprised it is not brought up at all. I’m also in New York State and this is the type of malpractice policy I have.
Good point. I definitely prefer occurrence policies and have even seen situations where they didn’t even cost any more.
You’re exactly right. Occurrence used to be hard to find, but that’s just not the case anymore. And with the Healthcare PL (professional liability) Market still relatively soft, rates are very competitive and you can find excellent coverage at an affordable rate on either policy type.
One very well known national malpractice company provides free tail coverage for any physician who retires after being insured by the company for 5 consecutive years. For the typical WCI audience, there are likely many of us who are able to early retire who can take advantage of this, though coverage is limited to one specialty.
Another tip is that you can get a lower premium if you work part time or are a surgeon who decides to no longer do surgery.
Yes, you’re right. In fact, free tail at retirement is now a standard practice for most medmal companies. Part-time credits are pretty generous and most companies offer several levels, depending on your average # of hours/week. Definitely worth looking in to.
Yes, Occurrence form coverage is another type of coverage that never requires a tail. Occurrence is simpler than claims-made since there is no retroactive date or tail coverage required. It is more expensive at first, but the savings benefit comes from not needing tail insurance in the end. Using a broker that can shop both types of coverage from multiple “A” Rated carriers will give you options. MEDPLI can help with both Claims-made and Occurrence, as well as Standalone Tail Coverage.
You forgot to mention getting an additional “rider” for a Medical Board issue. Cost is usually minimal and you need to get 25-50K of coverage as legal fess can build up very fast. Small chance it will occur, but you do not want to “settle” with your states Medical Board because it was costing too much.
You’re right. Most of the big, national carriers will give you up to $25K or $50K in defense, but no coverage for indemnity in the event of a loss. It’s worth looking into – and be sure to ask if that defense coverage is already included for you.
Dear Jim
Just wanted to clarify about the home office deduction.
For Telehealth I use two rooms exclusively approx 600 square feet combined
MY wife for her real estate uses approx 400 sq feet
According to the 5 dollar per square feet rule, I belive I can deduct 600 x 5 = 3000 / month for my TeleHealth and 400 x 5 = 2000 /month for my wife’s office (so approx 5000 / month)
Please advise
Thx
Raj
https://www.whitecoatinvestor.com/tax-deductions-for-a-home-office/
Simplified method maxes out at 300 square feet, $1500 a year. I believe that’s per return, not per person on the return.
If the office is bigger than that, you have to actually track expenses and recapture the deduction when you move.
I am confused
My office space is approx. 600 sq ft
My wife’s office space is 400 sq ft
I thought I could use the 5 dollar rule to deduct the home office expense
so 1000 sq ft x 5 = 5000 $ per month ?
Please advise
Thx
My CPA states she uses 45% of our home mortgage, insurance, property taxes etc, for home office deduction
also I realized I am not eligible for simplified deduction
I have an an S corp with my wife and 15 yr old daughter as employees
I have maximized my DB plan, 401 k profit sharing and have a Roth IRA for my daughter
Am I, my wife and my daughter still eligible for backdoor Roth?
What tax advantages will it provide?
Thx
That’s not the simplified $5 per square foot rule, but if you want to use a 1000 sq ft office, that’s the one you should use.
Your daughter doesn’t need to do a Roth IRA through the Backdoor, but she could if she wanted to. You and your wife will need to though.
Money in a Roth IRA grows and is distributed tax-free.
It’s limited to 300 feet, sorry.
What I want to know is, what were the ratings of those companies listed that have gone out of business in the months and years preceding their end?
I am a physician independent contractor with an urgent care in Texas. The company is covering my malpractice insurance. It is a claims made policy with limits of $200,000/$600,000 (the minimum in Texas). I can’t seem to find what is average for urgent care physicians in Texas. I’ve heard that most physicians in general purchase a policy of $1 million/$3 million, so I am a bit concerned that my coverage may be low.
Are there any Texas physicians that can shed light on this or can someone point me to a good objective resource? I thought about calling insurance agencies, but I’m also thinking that they may have a conflict of interest. Any info would be greatly appreciated.
Albe, while $1M/$3M is standard in most states, it all depends on your practice location, specialty, and your individual risk tolerance. Full disclosure, I’m not a doctor. I’m a malpractice insurance broker. The MPL Association produces reports annually that summarize malpractice claim data from all of the carriers. While they don’t have Urgent Care specifically broken out in this year’s report, I can tell you that the average indemnity payment for Internal Med nationwide was $375,545 and for subspecialties of IM the average indemnity payment was $299,531. $200K/$600K limits is low. I’m not comfortable recommending that to our clients, but it’s obviously your choice (or your employers… depending on how much control you have in that). Maybe a $500K/$1M limit would be a more comfortable level “up”? It might be worth getting quotes for several limit options to compare. – Jennifer Wiggins, Aegis Malpractice Solutions
Feels too low to me. I’d even offer to pay for part of the policy if they’ll bump up the coverage.
Texas does have some tort reform though as I recall, so maybe risk is a little lower there.