How to lower your tail coverage cost
Physicians typically have 60 days to buy tail coverage after their regular coverage has ended. Specialized brokers such as Mr. Teitelbaum and Ms. Perron help physicians look for the best tails to buy.
The cost of the tail depends on how long you’ve been at your job when you leave it, Ms. Perron says. If you leave in the first 1 or 2 years of the policy, she says, the tail price will be lower because the coverage period is shorter.
Usually the most expensive tail available is from the carrier that issued the original policy. Why is this? “Carriers rarely sell a tail that undercuts their retail price,” Mr. Teitelbaum said. “They don’t want to compete with themselves, and in fact doing so could pose regulatory problems for them.”
Instead of buying from their own carrier, doctors can purchase stand-alone tails from competitors, which Mr. Teitelbaum says are 10%-30% less expensive than the policy the original carrier issues. However, stand-alone tails are not always easy to find, especially for high-cost specialties such as neurosurgery and ob.gyn., he says.
Some physicians try to bring down the cost of the tail by limiting the duration of the tail. You can buy tails that only cover claims filed 1-5 years after the incident took place, rather than indefinitely. These limits mirror the typical statute of limitations – the time limit to file a claim in each state. This limit is as little as 2 years in some states, though it can be as long as 6 years in others.
However, some states make exceptions to the statute of limitations. The 2- to 6-year clock doesn’t start ticking until the mistake is discovered or, in the case of children, when they reach adulthood. “This means that with a limited tail, you always have risk,” Perron said.
And yet some doctors insist on these time-limited tails. “If a doctor opts for 3 years’ coverage, that’s better than no years,” Mr. Teitelbaum said. “But I would advise them to take at least 5 years because that gives you coverage for the basic statute of limitations in most states. Three-year tails do yield savings, but often they’re not enough to warrant the risk.”
Another way to reduce costs is to lower the coverage limits of the tail. The standard coverage limit is $1 million per case and $3 million per year, so doctors might be able to save money on the premium by buying limits of $200,000/$600,000. But Mr. Teitelbaum says most companies would refuse to sell a policy with a limit lower than that of the expiring policy.
Further ways to reduce the cost of the tail include buying tail coverage that doesn’t give the physician the right to approve a settlement or that doesn’t include legal fees in the coverage limits. But these options, too, raise the physician’s risks. Whichever option you choose, the important thing is to protect yourself against costly lawsuits.
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