Yes, medical malpractice tail coverage (also referred to as extended reporting endorsements or nose coverage) is tax deductible depending on your specific situation and should be discussed with a tax specialist for best results.
Claim-made policies typically offer physicians an option to purchase “tail” coverage upon the expiration of their policy, the cost being approximately 200% of what was paid initially for it.
Job-Related Expenses
Malpractice insurance is often required of physicians in some states and serves to protect them financially in case of malpractice lawsuits. Medical malpractice premiums are tax deductible; however, specific rules must be observed in order to take advantage of this benefit. These depend on your type of policy, state laws, employment status and employment type – it would be wise to consult a financial professional or IRS official regarding how applicable rules pertain to your specific situation.
Medical malpractice can strike at any point during your career and be devastating for both physician and patient. Even if you did not commit malpractice directly, such as breach of confidentiality or negligence claims could still come your way – this is why having adequate malpractice insurance protection in place will protect both parties financially should any claims or lawsuit arise against them.
Tail coverage typically costs 200% of your premium at the time that your malpractice policy expires, providing additional protection should they plan on changing positions, retiring early, or opening their own practice after their hospital or employer-sponsored policies expire. Physicians should negotiate tail coverage into their employment contracts if possible as this can save them significant sums of money in the long run.
Physicians should contact MEDPLI as soon as they consider changing jobs or when their current malpractice policy expires, to give themselves enough time to obtain standalone tail coverage quotes and make an informed decision regarding types of coverage available and costs of new policies. It may also be advantageous if changing insurance companies may impact which types of tail coverage may be available or how much their policy costs.
Dependent upon state laws, malpractice insurance premiums may qualify as unreimbursed employee expenses that you can deduct on Schedule A of Form 1040 as unreimbursed employee expenses. To qualify as miscellaneous expenses on Form 1040, they must exceed 2 percent of adjusted gross income.
Miscellaneous Expenses
Malpractice tail insurance, also referred to as extended reporting endorsements (ERE), is a vital element of medical malpractice coverage that protects physicians in case they are sued over an incident that happened under their previous policy but was not reported before expiration. Premiums paid for this coverage qualify as tax deductible expenses on Schedule A of Form 1040.
As is the case with any tax matter, deductions and credits vary according to an individual’s situation; as a result, it’s wise to consult a tax professional or the IRS in order to maximize all available deductions and credits.
Imagine working at a five-person nephrology clinic in Ohio for eight years before leaving to take up employment in Pennsylvania. After leaving Ohio behind you and signing a new malpractice policy in Pennsylvania, two years later a claim arises against you that occurred while employed there; without appropriate insurance protection in place you could incur costly legal bills to cover damages related to that incident.
Malpractice tail coverage can be invaluable. Although most doctors understand the necessity of medical malpractice insurance, few know that they must purchase tail coverage if their employment status changes, since most malpractice policies operate on a claims-made basis rather than an occurrence basis and thus only last as long as their current policy remains active.
When switching to an occurrence basis policy, you can obviate the need for tail coverage by purchasing separate extension of liability protection called nose coverage. While less costly than tail coverage policies, nose policies typically only provide protection for a limited period following cancellation or lapse.
If you are a doctor concerned about the cost of tail coverage, there are numerous “A Rated” insurance companies willing to write it separately for you. Most likely they can shop your tail coverage among multiple providers to give you the most cost-effective price possible.
Unreimbursed Employee Expenses
Malpractice tail coverage is an integral component of physician malpractice insurance policies, providing coverage after their claims-made policy expires or they switch insurance providers. Without it, doctors could find themselves exposed to costly defense fees in case they’re sued for medical negligence after their previous coverage has ended. Although physicians should seek to negotiate tail coverage into employment contracts where possible, purchasing it separately might be cheaper.
The IRS defines an unreimbursed employee expense as any expense not reimbursed or deducted by their employer, such as insurance premiums or malpractice tail coverage costs. To be eligible for deduction, these costs must meet several criteria, including being both ordinary and necessary in connection with trade or business operations. While malpractice tail coverage might seem like an extravagant expense for doctors, many will end up purchasing this type of policy either when their claims-made policy expires or they change insurance providers.
As with anything, shopping around and finding an affordable plan are the keys to saving money on medical malpractice tail coverage. While the cheapest plan may come through the company that issued your claims-made policy, doctors are welcome to get quotes from other financially reliable insurers as well. It is important to remember that longer tail coverage policies tend to cost more; most physicians opt for indefinite tail coverage as this offers maximum protection; if this option doesn’t suit them there are 1, 2, 3 5, 10 year options as well.
Medical negligence lawsuits may arise at any time; however, most often they will occur after the claims-made policy has lapsed. Therefore, malpractice tail coverage is an essential expense for all physicians, even those who have never been accused of medical negligence in the past. Not only can it protect a physician’s career and reputation; it also safeguards personal finances and retirement assets.
Other Expenses
Malpractice tail insurance provides protection after a malpractice policy has expired or lapsed, with premiums usually being tax deductible as business expenses. For more specific guidance and details it is advisable to speak to a tax professional directly.
Before purchasing a tail policy, physicians must also assess the financial strength of their malpractice insurer. One effective method of doing this is looking at their AM Best rating; an insurer with an above-average AM Best rating typically indicates they can pay out claims quickly in case of litigation.
Most physicians will carry a claims-made malpractice policy. This type of coverage provides protection for incidents occurring during their policy period regardless of when claims were reported, regardless of when they happened or who reported them. When moving jobs or switching insurance carriers due to job changes, their new policies won’t cover claims related to incidents occurring prior to this change – leaving them exposed against possible costly lawsuits from claims filed prior to making this switch. In order to mitigate this potential liability risk and keep all prior acts covered under their new plan. To do this effectively they must purchase or transfer prior acts from previous policies onto new policies in order to cover them all before filing claims are filed against them in this scenario if someone files suit against them for prior acts committed before this change takes effect – either purchase tail policies from prior carriers that provide coverage of all previous acts covered before changing jobs! To get around this potential cost issue altogether by purchasing tail policies covering prior acts that occurred prior to switching insurance carriers due to job changes. To do this however, either purchase tail policies from current carrier that won’t cover this gap or transfer prior acts onto new coverage before switching policies altogether by purchasing tail policy coverage prior act coverage through transfer clause clause. To do this effectively you will require purchasing tail policy from either purchase/transferring prior acts covered before/otherwise either purchase/transferring prior acts into their new insurer or transfer their previous act coverage via transfer clause clause. In either way. To do this effectively. To do this from occurring they could end up cost effectively or transfer them. To do this and reduce exposure will need be purchased or transfer the previous insurer (ie). To do this when changing carrier then purchasing ‘tail coverage from another policy (Ta new carrier (transferring out to new policy for full protection for them as an optional tail policy purchase or both before new insurer.
If a physician works within a group, their group might choose to purchase a tail policy on behalf of all physicians in it to reduce costs for everyone in it. Once purchased, these costs would then be listed under Miscellaneous Expenses on Schedule A as itemized deductions on Form 1040; their total amount must exceed two percent of adjusted gross income in order for this expense to qualify as such a deduction.
Self-employed or private practice doctors who purchase tail coverage for themselves can deduct its cost when purchasing it as an expense deduction, helping protect their personal assets in case an alleged medical malpractice claim is filed against them. Since this type of coverage can be costly, it is wise to compare rates offered by multiple companies before purchasing it yourself. Individuals should keep copies of all documents related to their malpractice policy just in case someone ever files a claim against them.