What Type of Business Insurance Do Dental Practices Need?
Being a small business owner comes with a myriad of risks. A fire could close down your business. An employee could embezzle funds. A customer could fall in your lobby. These are all risks that small business owners face.
Dentists face these same risks, but dental practices also have risks that are unique to what they do. You may have specialized, high-value equipment that needs to be properly insured. You may have made significant improvements to a building or leased space to make it suitable for a dental practice. You also have employees, patient information, and a business that depends heavily on being able to operate from a physical location. All of these factors need to be considered when determining what insurance a dental practice needs.
Today, I want to take a look at what types of business insurance a dental practice typically needs.
Let’s start by defining what business insurance is. Business insurance is insurance that helps protect a company from financial losses caused by accidents, legal claims, property damage, and unexpected interruptions.
It isn’t just one type of policy. There are many different types of policies, and some of them can be packaged together to create a customized insurance program specifically for a small business. For a dental practice, these different coverages work together to protect the various parts of the business and the risks that come with operating it.
So, we’re going to go through the common types of coverage that Insurance by Dentists recommends dental practices consider. We’ll look at each one individually, explain what it is, and talk about why a dental practice may need it.
These are the common coverages that most dental practices should consider, but every practice is different. Working with your insurance agent, and more importantly an agency that understands dental practices, should help you identify what coverage you need and what you don’t.
A good insurance program isn’t about having as much insurance as possible. It’s about having the right insurance for your practice and making sure you aren’t over-insured or under-insured.
Business Owners Policy
I think the best place to start is with what is called a Business Owners Policy, or BOP. For many small businesses, a BOP is a foundational insurance policy because it packages several important coverages together.
A Business Owners Policy generally starts with three main areas of coverage: property insurance, business income insurance, and general liability insurance.
Property Insurance
Property insurance is similar to insurance on your home, but for your business.
If you own the building, property insurance can provide coverage if the building is damaged by a covered cause of loss, such as a fire, windstorm, tornado, or other covered event. It can also cover the property your business owns inside the building.
For a dental practice, this can be especially important because of the amount of equipment, furniture, supplies, and other property that may be inside the office.
If you lease your building, you may not be responsible for insuring the building itself, but you will likely still be responsible for your business personal property, meaning the property your business owns inside the space. You may also be responsible for certain improvements made to the leased space.
This is where it is important to review your lease. Your lease should help determine what the landlord is responsible for and what you are responsible for insuring.
Business Income Insurance
The next important part of a BOP is business income insurance.
Let’s use an example.
Suppose a fire damages your dental office and the practice has to close for four months while repairs are being completed. Even though you may not be seeing patients during that time, many of your expenses do not simply disappear.
You may still have payroll, rent or mortgage payments, loan payments, utilities, insurance premiums, and other ongoing expenses.
Business income coverage is designed to help replace lost income and cover certain continuing expenses when the practice is unable to operate because of a covered loss.
How much business income coverage you need can be calculated in different ways. Some policies may provide coverage based on actual loss sustained, while others may have a predetermined limit. That is something you should work through with your insurance agent because determining the appropriate amount of business income coverage goes beyond what we are covering in this article.
General Liability Insurance
The third major part of a BOP is general liability insurance.
General liability helps protect the practice from certain claims involving bodily injury, property damage, and personal and advertising injury.
First is bodily injury. If someone were to slip and fall in your practice, get hurt, and make a claim against the business, general liability insurance could respond.
The second is property damage. For example, suppose a vendor is in your office and their laptop is accidentally damaged because of something your business is responsible for. Or imagine a sign outside your practice falls and damages someone else’s vehicle. General liability insurance may help cover that type of property damage claim.
The third area is personal and advertising injury. For example, if your practice published marketing material that allegedly contained defamatory information about a competitor and you were sued, this part of the policy may provide coverage.
These three areas come together to make the BOP a foundational package policy for many small businesses, including dental practices.
Additional coverages can often be added to a BOP depending on the practice and the insurance carrier. We are going to talk about several of those coverages separately because they deserve their own explanation.
Cyber Insurance
The new buzzword over the past four or five years has been AI. AI this, AI that. I’m sure you hear about it all the time, and you may even be developing some AI workflows in your own practice.
AI is also having an impact on cybersecurity and cyberattacks. As technology continues to develop, cyber risk is becoming more important for businesses to consider. AI can make things like phishing, social engineering, and other types of cyberattacks easier and more sophisticated.
So, let’s talk about cyber liability insurance.
Cyber liability insurance is designed to help protect your dental practice from the financial impact of a cyberattack or cyber incident. This can include data breaches, ransomware attacks, phishing, fraud, and system interruptions.
Cyber insurance can cover many expenses that you might not immediately think about when you think of a cyberattack.
One is business interruption. If a cyberattack shuts down your systems and prevents your practice from operating for a period of time, cyber insurance may help replace lost income and cover certain continuing expenses.
Another is cybercrime and fraud. Depending on the policy, this can include financial losses caused by things such as hacking, fraudulent fund transfers, or certain types of social engineering.
There are also costs associated with a data breach. Dental practices handle highly sensitive patient information and are subject to HIPAA requirements. If patient information is exposed, the practice may have notification obligations. There can be costs associated with notifying affected individuals, providing credit monitoring, hiring legal counsel, responding to regulatory investigations, and defending the practice if a lawsuit follows. Depending on the circumstances and the policy, cyber insurance may also provide coverage for certain regulatory fines and penalties where they are legally insurable.
Cyber insurance can also help with network and system recovery. This may include forensic investigations to determine what happened, data recovery, and the cost of restoring compromised systems.
Ransomware is another concern. If an attacker locks a practice out of its systems and demands payment, some cyber policies may provide coverage for ransom payments and the professionals needed to respond to the attack, subject to the policy terms and applicable law.
Some policies may also provide coverage for crisis management and public relations expenses following a cyber incident, which may become particularly important for a larger practice or a significant breach.
Cyber insurance is something we believe dental practices should take seriously. Dentists may not always think of themselves as major cyber targets, but dental practices still hold valuable and highly sensitive information.
One thing we commonly see is a practice carrying a relatively small amount of cyber coverage, sometimes $50,000 or another limited amount included with a Business Owners Policy or another policy. While some coverage is better than none, the financial impact of a significant cyber incident can quickly become much larger.
For many practices, we believe limits in the range of $500,000 to $1 million are worth considering, depending on the size of the practice, its systems, revenue, patient information, and overall exposure.
The important thing is to understand what cyber coverage you currently have, what it actually covers, and whether the limit would be enough if a serious cyber incident occurred.
Employment Practices Liability Insurance
This next type of insurance is one that I’m sure some dentists will think they don’t need. You may have created a family-like environment in your practice, have great relationships with your employees, and believe that none of them would ever sue you.
We understand that. But the reality of owning a business is that things can happen. Relationships can change, employees can become upset, and disagreements can sometimes turn into lawsuits.
That’s where Employment Practices Liability Insurance, or EPLI, comes in.
EPLI is a type of insurance that helps protect employers from claims and lawsuits related to employment practices. This can include allegations of discrimination, harassment, wrongful termination, retaliation, and other employment-related issues.
EPLI can help cover defense costs, settlements, and judgments. If your practice is sued over a covered employment-related claim, the insurance company can help pay for your legal defense. If the claim results in a settlement or judgment, the policy can help pay that as well, subject to the policy limits and terms.
One important thing to ask your agent is whether defense costs are inside or outside the policy limit.
If defense costs are inside the limit, the money spent defending the claim reduces the amount of insurance you have left. For example, if you have a $50,000 EPLI limit and $15,000 is spent on legal defense, you may only have $35,000 remaining to pay a settlement or judgment.
If defense costs are outside the limit, those legal expenses do not reduce the $50,000 available for a settlement or judgment. When available, having defense costs outside the limit can provide significantly more protection.
Like cyber insurance, we believe EPLI is an important coverage for dental practices to consider. It is easy to think that because you run a tight-knit practice and have good relationships with your employees, an employment claim will never happen. Hopefully, it never does. But it can happen, and when it does, the cost can become significant very quickly.
That is why having sufficient limits matters. At Insurance by Dentists, we generally recommend considering limits around $1 million for EPLI, depending on the size and circumstances of the practice.
For example, if a former employee alleges wrongful termination and the total cost of defending and resolving the claim reaches $700,000, a small EPLI limit may not provide enough protection.
Ultimately, that is what insurance is there for. It protects against the events you hope never happen but that could create a serious financial loss if they do. Without the proper insurance or sufficient financial reserves, a major claim can significantly set a business back.
Equipment Breakdown
Dental practices rely on expensive equipment every day. You may have X-ray machines, sterilizers, compressors, vacuum systems, and other equipment that is essential to keeping the practice running.
If one of these important pieces of equipment suddenly breaks down, it can create more than just a repair bill. It can also disrupt operations and cause the practice to lose income.
Equipment breakdown coverage is a type of business insurance that can help pay for the repair or replacement of commercial equipment damaged by certain sudden mechanical, electrical, or pressure-system failures. Depending on the policy, it may also help cover business interruption, extra expenses, and other losses caused by the breakdown.
For example, suppose a power surge damages an important piece of equipment in your practice. The equipment has to be repaired or replaced, and while it is down, you are unable to use one or more operatories.
Equipment breakdown coverage may help pay to repair or replace the damaged equipment. If the breakdown causes you to lose income or creates additional expenses while the equipment is being repaired, the policy may also provide coverage for those losses, depending on how the policy is written.
This is why equipment breakdown coverage can be important for a dental practice. When your business depends heavily on specialized equipment, the failure of one important system can quickly affect your ability to operate and produce income.
Workers’ Compensation
Workers’ compensation is going to be required for most dental practices. It is a state-mandated insurance program that provides benefits to employees who become injured or ill as a result of their job.
If you own a dental practice with employees, there is a good chance you already carry workers’ compensation insurance. The exact requirements vary by state, but for many practices, it is not optional.
Workers’ compensation can help pay for things such as medical expenses, lost wages, and other benefits when an employee is injured on the job. Because dental practices rely heavily on employees, this is an important and often mandatory part of the insurance program.
Commercial Umbrella
Commercial umbrella insurance provides an additional layer of liability protection above certain underlying business insurance policies, primarily general liability.
The easiest way to think about it is as insurance on top of insurance.
For example, if you have a $1 million general liability limit and a covered claim exceeds that amount, the commercial umbrella may provide additional coverage above the underlying limit, subject to the terms of the policy.
One important thing to understand is that you should not assume a commercial umbrella automatically extends over your dental malpractice insurance. Professional liability is often not included under a standard commercial umbrella unless the policy specifically says that it is.
Commercial umbrella insurance can be a relatively affordable way for a dental practice to purchase additional liability protection, especially when compared with the potential cost of a large lawsuit.
Crime and Employee Dishonesty Coverage
Crime insurance, including employee dishonesty coverage, can help reimburse a business for certain direct financial losses caused by dishonest acts committed by employees.
For example, suppose an employee who has access to the practice’s finances begins stealing money from the business over a period of time. Depending on how the policy is written, employee dishonesty coverage may help reimburse the practice for that loss.
Most practice owners trust their employees, and hopefully that trust is never misplaced. But employee theft and embezzlement can happen, which is why we believe this is another coverage worth considering.
Hired and Non-Owned Auto
Hired and non-owned auto liability is more situational, but it can still be important for many dental practices.
If you or your employees ever use personal vehicles for business purposes, such as making a bank deposit, picking up supplies, or running another business-related errand, there can be an auto liability exposure.
If an employee gets into an accident while using a personal vehicle for work, their personal auto insurance would typically respond first. Hired and non-owned auto coverage can help protect the business if it is also held liable for the accident.
If employees never drive for business purposes, this coverage may not be as important. But if they do, even occasionally, it is something worth discussing with your agent.
Flood Insurance
Lastly, let’s talk about flood insurance.
Flood damage is generally not covered by a standard commercial property policy. Because of that, dental practices with meaningful flood exposure may need a separate flood insurance policy.
If your practice is located in or near an area with flood exposure, ask your insurance agent about it. They can help you understand the flood risk around the property and determine whether obtaining a flood quote makes sense.
Flood losses can be catastrophic, especially when they damage both the building and expensive equipment inside the practice. Even if you do not believe your practice is in a high-risk area, it is still worth understanding what your property policy does and does not cover when it comes to flood.
Business Insurance Is Important
Dental practices face many of the same risks as other small businesses, but they are also unique because you are managing both clinical and business risks.
As a dentist, you are performing complex procedures and taking care of patients, but as a practice owner, you are also the CEO of your business. You have employees, equipment, property, finances, and an entire operation that you are responsible for protecting.
Understanding those business risks and the role insurance can play in protecting your practice is important. The goal isn’t simply to buy more insurance. It is to understand your risks and make sure you have the right coverage in place if something goes wrong.
If you have questions or would like us to review your current insurance program to identify potential gaps, visit our Business Insurance page to learn more about how Insurance by Dentists can help protect your practice.
You can also reach me directly at oranpearson@insurancebydentists.com with any questions.
I hope you found this helpful.
