Professional Liability 101 - Common Questions & Answers
Overview.
What deductible should I purchase?
First look at what you can afford to come up
with unexpectedly. In generally the higher the deductible you purchase the lower
the insurance cost. But because of how insurance carriers give deductible
credits, you may find out that going to the next highest deductible is not a
financially sound decision. Take the difference in deductibles and divide by the
difference in the cost of the deductibles. This will determine your deductible
payback.
Here is an example:
Liability Limit |
Deductible | Premium
$100/$300
| $5,000 |
$3,000
$100/$300
| $10,000 |
$2,000
Difference is deductibles: 10,000-5,000=5000,
Difference in premium: 3,000-2,000=1000, 5000/1000 = 5 Year pay back for
deducible. If you think that probability of having a claim in less than 5 years
is high purchase the
lower deductible. If
you think that it is low, purchase the higher deductible.
What are these other (Add-ons) Coverages?
What about Claims Expenses Outside the limits? Generally the reason that
you want to purchase claims expenses outside the limits is to prevent the
“Burning” of your liability limit. Professional Liability Insurance defense
costs are generally part of the liability limit, so the more it costs to defend
a claim; the less is left to settle the claim. As you are being defended you
“burn” through your liability limit.
Understand that Claims Expenses Outside the Limits is not an unlimited
coverage. It is generally limited to either you limit of liability or some other
lower sub-limit. Normally Claims Expenses Outside the Limits is capped at
no more than $1,000,000. In the current insurance market environment this
coverage is more difficult to get. If you are concerned about this and do not
think your underlying coverage is enough, the other alternative to Claims
Expenses Outside the Limits is to get a higher per claim liability limit.
What about 1st Dollar Defense or a Loss Only
Deductible? Two years ago, companies were giving this coverage away almost
for free, but now it is getting increasingly difficult to obtain this coverage.
This only helps if there are claims expenses (defense costs) only and no
indemnity payments. If there is an indemnity payment made you are still liable
for the deducible. It generally makes more sense to see if you can get this
coverage if you are carrying a high deducible. Otherwise, if you are
uncomfortable with the deductible being carried, see what the cost of getting a
lower deductible would be.
What about these Additional Coverage’s?
There are a host of different sub-limits and add on coverage’s, one of the most
common is defense coverage provided for disciplinary proceedings. It pays for
the defense but not for the fine. Another is reimbursement expense for you or an
employee for the time you spend in helping defend a claim.
More
professional liability insurance faq's on our blog @ http://www.mcisinc.us/blog/16/professional-liability-insurance-faqs/
