Risky business if you don’t have “tail insurance.”
Doctors are aging out of the medical field along with the rest of the baby boomer generation. In 2014, one out of every four doctors was over 60. HTTP://www.centerforhealthjournalism.org/2014/03/10 While it sounds wonderful to be able to retire and not have to worry about all the complexities of operating a medical practice, there are insurance risks you must address before exiting the workplace.
Chances are high that you might not have considered retirement at the time you entered into practice and selected your insurance coverage options some thirty plus years ago.
Most doctors are keenly aware of the necessity for professional liability insurance a/k/a medical malpractice insurance while in active practice but they may not be as knowledgeable about their options upon retirement or becoming disabled and leaving the practice of medicine altogether. One might think General liability insurance will suffice after retirement, which is not correct. General liability insurance does not cover any part of medical malpractice.
So, what is the most important type of insurance you need to address upon retirement?
The primary insurance needed for retiring Doctors is Tail Insurance.
In the past, tail coverage was an extended reporting period endorsement, offered by a physician’s current malpractice insurance carrier. Simply put, this insurance is basically a continuation of your medical malpractice insurance upon leaving employment, reaching retirement, or becoming disabled. Retirement situations are the focus herein so we are narrowing the endorsement terminology to a non-practicing extended reporting period endorsement. Some insurance carriers historically provided free tail coverage upon retirement if the Doctor had 5 previous years of existing coverage with their company; or you could purchase a policy through your existing carrier only. The same factors generally applied if you become disabled.
Tail insurance differs from medical malpractice which only provides coverage for the period of time the policy was in effect and is a Claims Made policy. Tail coverage is for prior acts which occurred during the time http://www.irmi.com/claimsmade the original malpractice policy was in effect, but a claim is not filed until after the cancellation of the original policy. So it covers acts of negligence which occurred while in practice, but the claim is made after the physician retires. This assumes that the Doctor had an active malpractice policy in place before retirement that covered claims within the original policy dates.
The insurance industry has evolved dramatically in this area and now offers alternatives to obtaining tail coverage either directly from your former professional liability insurance carrier or a different carrier of your choosing through the use of a Stand Alone Tail Policy.
So what do you need to do to ensure you’re protected in your golden years?
First, you want to examine any agreement or contract that you entered into as part of your practice, or with any hospital where you were on staff, which addresses what type of insurance, if any you are required to carry upon retirement or leaving the hospital staff, the aggregate limits requirement in the contract and the cost of the premiums. You also should see a clause in the agreement which identifies whether you are required to pay the cost directly or the group is required to continue the payment, if applicable.
Then you want to look at your existing individual malpractice insurance or group malpractice policy to see if it has a provision for the free endorsement after retirement, and when it would become effective which is generally after 5 years of coverage.
Once you know if you have to provide the cost of the tail insurance and what the policy limits need to be you can go forward and decide whether continuing with your present carrier is your best option.
If you are a sole practitioner then the decision making is a little easier. You will still need to determine your contractual obligations with any hospital you are on staff with. If you don’t have tail insurance you need to obtain it before retiring. If your original malpractice expires you will have a gap in coverage. Contact your current malpractice carrier and see if they provide a free endorsement and determine what the applicable date is that the free endorsement would become effective. If you are not eligible for a free endorsement with your present carrier, determine whether coverage is available through your carrier and what your options are as to cost and amount of coverage.
If the price is exorbitant, which it may be, you can comparison shop different insurance companies for a stand-alone tail policy. This type of policy can cover different lengths of time for the extension period ranging from 1 year to indefinite. Since medical malpractice claims may be filed many years later it is a prudent idea to consult an attorney to determine the statute of limitations in the area where you practiced. An Indefinite extension would be the optimal time length as you would be covered if a claim is ever filed, but that option may not be affordable. Some insurance carriers are offering financing on this type of insurance.
An independent insurance agency or broker is able to shop numerous carriers and find the perfect fit at the right price for you. So don’t end up holding a tiger by the tail. Take action to protect your assets.