Choosing Professional Liability Insurance

Let's start with the basics. Americans as a whole are extremely litigious, and professionals such as yourself are at serious financial risk. If you interact with clients or patients directly or provide a specialized service for a fee, you are at an even higher risk. If you provide medical assistance to those clients, you are in the highest-risk category of all.

Should something go wrong in the course of business, one lawsuit often spurs others among the defendants as they seek to divert blame and to cover their losses. That simple truth makes it even more conceivable that you will face a lawsuit. One lawsuit can wipe out not only your uninsured cash and assets, but throw you into debt and might end your practice. You could even lose your license. Scary, huh? That worst-case scenario has happened often enough to responsible professionals that professional liability insurance is a necessity for nearly every professional. So how do you choose the program that is best for you?

How Much Do You Need?

More than most forms of insurance, the amount of professional liability insurance you need is based on subjective factors, such as how likely you are to be sued and the likely severity of the claim. Every CPA needs liability insurance, for example, but corporate accountants are more likely to be sued for higher amounts than personal accountants. Since they are more likely to be sued and since they will need more coverage, corporate accountants can expect to pay higher premiums than personal accountants. To give you an idea of how much coverage you might need, though, consider that one accepted guideline calls for $100,000 per professional.

Bargain Hunters Beware!

This is where things get complicated. The first rule of choosing professional liability insurance is to forget about the price. If a few hundred dollars a year seems like a good reason to choose one company over another, go back and reread the second paragraph. This insurance is protecting your very way of life and means of support, so many other factors are more important. Also, you only want to make this decision once. Keeping one policy (or provider) throughout your career gives you piece of mind that you will be covered for any claim brought against you. If you change providers today and are sued next year by a client you saw last year, you could well find that you are not covered by either provider! For that reason alone, choosing the right provider is of utmost importance. (If you have other gaps you now want to cover, ask your advisor about "occurrence form" liability insurance.)

How to Find Providers

So now that we've decided that price isn't going to drive your decision, let's look at what will. Since you want to make sure you'll likely be able to keep one provider for your entire career, you'll want to stick with one of the long-established providers. They've proven that they'll probably be around long after you retire.

Most likely, your professional association "endorses" some provider's coverage for its members. Such endorsements are a useful starting point, as the association probably would not risk its reputation by recommending disreputable companies. It is still important to judge these providers just as rigorously as any other, though, since they almost certainly paid the association for their endorsement.

Assuming you have an impartial advisor (which you should), they'll point you in the right direction for your circumstances quickly and easily. Once you have a few providers in mind, ask your colleagues if they have had any experiences with any of the providers.

It's essential that you check the rating of any company you consider. A.M. Best provides the industry-standard rating for every provider in the United States. It is on a refreshingly simple A+++ to F scale. (We recommend A+ or better.)

Choices, Choices, Choices

An experienced advisor will be able to work out a policy that fits your needs, but like any insurance policy there are options for you to consider. There's the amount of the deductible, of course. Some policies will pay not only the settlement or award, but cover defense and court fees as well. (They may not let you choose your own lawyer, though.) Some policies will apply your deductible to the court and lawyer fees. The 'trigger' for a policy is worth considering as well: is an allegation enough to enact your compensation, or does a formal lawsuit need to be filed?

Each provider deals with these specifics in their own way, and that is another reason to leave the price of the policy out of the equation. When dealing with reputable companies like the ones you'll be using for professional liability insurance, almost all of the prices will be comparable for the coverage provided. Court cost and (particularly) lawyers' fees can be astronomical, so coverage that leaves you paying for these might end up costing more than you save on the premiums. The only time price can enter your decision-making is when you have nearly identical policies from two (or more) providers of equal standing. Just make sure the coverage really is nearly identical, down to the last few details.

The best time to choose your insurance provider is when you first begin your practice, and ideally you will be able to maintain that same provider for the duration of your career. If you choose carefully, you may be able to do just that and avoid any gaps that could cause trouble for you later. An experienced advisor is critical, and coupled with your own research and attention you'll be able to sort through all the options available and purchase complete yet reasonable coverage for the duration of your practice.

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