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    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.


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