When establishing a new practice, it is vital to obtain insurance. If an employee slips on a wet floor and breaks a leg, insurance is needed. If a burglar steals computer equipment, insurance is needed. If a hurricane destroys everything in the office and the practice must close for the next 6 weeks, insurance is needed. However, there are many kinds, and no one-size-fits-all exists.
The first step is to find an insurance agent. Ask around, get recommendations, and make an appointment. Keep in mind that some agents work for specific companies, whereas others are independent and deal with a few different companies. Regardless, a good agent will be able to compare quotes, process paperwork, help obtain the best coverage for the best cost, and generally make life much easier. The following coverage is needed to protect your practice as well as yourself:
Protecting the Practice
This is mandatory in nearly all states and is needed to cover the practice’s employees in the event they get injured on the job. This coverage can be obtained, in most states, from private insurers. However, some state agencies or state funds offer this as well. As the practice is set up, a certified public accountant can help navigate through the maze of local, state, and federal tax and employment regulations and be an invaluable resource, especially if they are consulted early in the process.
This is the standard general business insurance and covers property loss and business liability, as well as other business-related risks (e.g., loss of income, employee theft, employee dishonesty, employees’ personal property, and electronic data). Take the time to investigate the coverage limits and exclusions. Most businesses don’t fail directly from a material loss, but rather from the subsequent loss of operations and inability to recover. Make sure the policy selected covers the total value of the business property and will provide enough money to get the practice back on its feet. There may be specially delineated coverage for items such as computer equipment, papers and records, exterior signs, glass (which some landlords specifically require), and building damage; understand the limits and ensure they are adequate to cover all potential losses.
Unique to pediatric offices, vaccines will need special additional coverage in case of power failures, unless the practice is located in an all-Vaccines for Children state (universal purchase state). Some policies may contain a specific vaccine rider, while others may include these under “spoilage.” Again, make sure the policy limit is high enough to cover a total loss of inventory, which can be up to $150,000 per physician or more. Carefully review what situations might be excluded, and if the practice is at risk in these instances. Common examples are earthquake and flooding. If there is any confusion over the policy, talk to the insurance agent to help clarify. The worst time to learn about gaps in coverage is when disaster strikes!
If the practice is in a flood or earthquake zone, coverage can be purchased for these hazards separately within the context of general business insurance. Flood coverage is available from the federal government. Earthquake insurance is usually either an additional endorsement or a separate policy from a private insurer. Keep in mind that these special policies usually cover physical losses only, not loss of business income or related recovery expenses.
Most general business insurance policies also offer coverage for slips and falls, defense costs, and judgments against the business owner and employees. Employment practice liability insurance provides limited coverage for claims resulting from employment- related wrongful termination, discrimination, sexual harassment, and other workplace torts (eg, retaliation, defamation, emotional distress, invasion of privacy, negligent evaluation, wrongful discipline, wrongful failure to employ or promote, wrongful demotion, etc). Auto liability protects against vicarious liability in case an employee gets into an accident while running an errand for the practice (e.g., a trip to the bank or post office).
An umbrella policy provides additional coverage above the usual commercial policy limits, in case of liability. Physicians and physician practices have the potential to be an attractive target in a lawsuit, and an umbrella policy can offset that risk. Consider how much would be needed to protect the value and earning potential of the practice. A standard policy might supply coverage up to $1 million. Expect to pay a premium of a few hundred dollars annually if this coverage is elected. Be absolutely sure the insurance contract spells out all coverage as well as non-coverage, and what the practice’s responsibilities are as the insured.
Once insurance coverage has been obtained, keep a copy of the policy (or policies) safe and away from the office. Take an inventory of the office, whether written, photographed or videotaped. Keep purchase receipts to assist in determining the amounts of any potential loss. It is usually a good policy to have a second copy of all the inventory, photographs, or videotapes in the hands, or files, of the insurance agent. If so, make sure to update them regularly as new equipment or materials are acquired.
Using the Policy
In the unfortunate event that the policy needs to be used, consider the cost of the deductible(s) against the amount of loss. Coverage and exclusions that seem straightforward may be subject to debate after the fact. As an example, after a hurricane, insurers may debate “wind versus water,” where water damage related to wind—such as a breached roof and subsequent rain damage—is covered, whereas water damage related to storm surge is excluded.
Conflicts can arise in determining what portion of equipment or structures were damaged from which cause. The delineation may be even more important because straightforward property loss usually has a flat dollar-amount deductible, whereas wind or earthquake damage usually has a deductible based on a percentage of the value of the property. Loss of business income may be denied because of flood damage but could instead be claimed from loss of power and infrastructure, or civil disturbance. If unsatisfied with the insurer’s settlement offer, consider appealing to the state insurance department. It is always critical to involve the agent from the outset. Check with the state medical society for additional information about insurance policies.
It’s best to shop around and ask peers about malpractice insurance. This is an activity to accomplish early because many other entities will want proof of coverage. Be ready to forward information on previous insurers, if any, as well as any explanations of claims. The state medical society can be an excellent source of information. For information on the basics of medical malpractice insurance and other issues related to medical liability visit, Basics of Medical Liability - Lifelong Career Protection.
A disability insurance policy covers a specific physician in the event that they cannot perform the work they want to perform. Own-occupation coverage may cost significantly more but only requires that the physician can no longer function as a pediatrician (as opposed to being completely incapacitated from any work). Most plans offer different options for waiting and benefit periods. For example, a plan may not pay until after 30, 60, or 90 days of disability. Benefit periods may last for 1 year, 3 years, 5 years, or up to age 65 years. Make sure the disability plan offers the ability to increase coverage limits each year, to grow with the practice’s success and ever-increasing income. Also, rates for this coverage are generally lower when physicians are healthier and younger.
Life insurance should be purchased to cover any liabilities or debts of the practice, or to replace income for the physician’s family. If married, consider a policy for the spouse to offset the loss of the numerous ways they help (e.g., providing a second income, caring for children, helping manage the practice).
Don’t forget health insurance coverage for physicians and their families and consider if and how to offer coverage to employees. The local chamber of commerce can be a valuable source of information in this regard.
The AAP offers a discounted rate for group insurance plans covering term life, disability income, office overhead expense, dental and long-term care. Visit http://www.aapinsurance.com to learn more.
American Academy of Pediatrics