Choosing the Right Lawyer Professional Liability Deductible Option
Selecting the right deductible option is a strategic decision that balances risk and financial planning. It’s not just about current needs but also about anticipating future scenarios.
The Lawyer Professional Liability (LPL) different deductible options may be part of the policy or provided as an additional charge. The deductible options can be in the declarations page or via policy endorsement.
- Zero Dollar Deductible—with a zero dollar deductible the remaining options do not apply. With a Lawyers Professional Liability Insurance true zero dollar deductible option, the firm has no out-of-pocket deductible costs. Few malpractice insurers offer this option. This option does increase insurance costs.
- Per Claim Deductible—the firm is responsible for the deductible on each LPL claim. The policy premium is usually less than any other option. Certain practice areas or firm practices may tend to develop multiple claims in a policy year. A per claim deductible can increase the financial risk to the firm.
- Annual Aggregate Deductible—this limits the firm’s deducible cost to the amount listed as the aggregate deductible. A cap is set on the total deductible amount the firm pays within a policy period. No further deductibles apply for that period once you reach the cap. Aggregate deductibles can increase the premium.
- 1st Dollar Defense (FDD)–sometimes called a loss only deducible. With FDD the insured is only responsible for the deductible when there is a claim indemnity payment. Without FDD the deductible is due as claims expenses or indemnity payments incur. If the claim results in no indemnity payment, then there will no be a deductible owed. The other advantage of having FDD is that with LPL claims the time between the making of the claim and when an indemnity payment is due could be months if not years. FDD does increase the premium.
- Deductible Abatement—this is a unique feature. Few insurers offer this option. The deductible abatement is like a savings account that accumulates the longer you are with an insurer. The abatement amount increases at each renewal for example by $2500 up to a maximum of $10,000. If a claim is made then the abatement is used to offset the deductible costs for the law firm. Coupled with an aggregate deductible, the firm with a $10,000 deductible can pay for a $10,000 deductible, and at least for that one policy period have the benefit of a zero dollar deductible exposure at a lower cost.
- “Donut Hole” Deductible—is another unique feature. Few insurers offer this option. With this feature, the insurer pays up to a certain amount (for example up to $2500) of any LPL claim made and the firm is responsible for their deductible after expenses exceed this amount. After the deductible, then the insurer resumes handling claim costs, i.e., the “donut hole.” This is a nice feature that eliminates out of pocket expenses for small nuisance claims.
Combining the above options allows the law firm the deductible exposure that they are comfortable with at a cost that makes sense for the firm.
Factors to Consider When Choosing a Deductible Option:
- Financial Stability: Assess your firm’s ability to handle out-of-pocket expenses associated with higher deductibles.
- Claims History: A firm with few or no past claims might opt for higher deductibles to reduce premiums.
- Risk Tolerance: Consider how much financial risk you’re willing to assume versus paying higher premiums.
- Practice Area: Certain legal specializations carry higher risk, influencing deductible choices.
- Firm Size: Larger firms may face more claims, making aggregate deductibles more appealing.