A policy limit is the maximum amount that will be paid out per term or per covered claim, depending on your policy. There may also be different policy limits for different sections of your insurance coverage. Choosing the right policy limit for professional liability insurance can be tough, but we’re here to help.
Professional Liability Insurance
A quick explanation of professional liability insurance before we get to choosing a policy limit. Professional liability insurance can help cover your legal expenses if you’re sued by a client for financial loss due to your provided professional service or advice or failure to provide it. This includes defence costs as well as settlements or judgement awards. It doesn’t usually cover intentional harm or criminal acts, but it can cover allegations of:
- Failure to provide the service or advice
- Libel and slander towards the client
- Inaccurate advice
- Loss of client documents
Even if you’re innocent, you’ll need to cover your legal expenses. This coverage can help cover these costs for professionals.
What is a policy limit?
A policy limit is the maximum amount that will be paid to you if you have a covered claim. For professional liability insurance, this limit generally applies per term (a year) rather than per claim.
For example, let’s say you have a policy limit of $1 million. A client sues you for financial loss and your defence costs are $250,000. Another client sues you later that year and is awarded $750,000 plus you have legal defence costs of $300,000. Because your policy limit of $1 million applies for the entire term of your policy, your second lawsuit will exceed that amount and the difference of $300,000 won’t be covered. That’s why choosing the right policy limit is very important – you don’t want to be caught paying these expenses out of pocket if you can avoid it.
Choosing the Right Policy Limit for Professional Liability Insurance
At EasyCover, we offer three options for professional liability insurance policy limits:
- $1 million
- $2 million
- $5 million
This will be the maximum amount you’re eligible to receive per term (or year) including legal defence costs, settlements, and judgement awards. A deductible will also apply for each claim.
Choosing the right policy limit depends on a few factors. Here’s what you should consider:
- Contract Requirements
Many contracts in Canada require a minimum of $1 million or $2 million of professional liability insurance. Be sure to check the requirements of any contract you enter.
Consider your industry’s risks and how common lawsuits are. You can ask your network of professionals for information on what protection they or their businesses have or talk to a broker for an idea of the risks and what coverage is common in the industry.
- Individual Business Risks
Evaluate the risks unique to your business. Do you take on specialty projects? Do you work with a particular clientele?
- Your Clientele
How many clients you have, how big they are, which industry they operate in, and the value of your contracts can all impact your chance of being involved in a lawsuit. Generally, the bigger the numbers, the higher this chance is and you should choose your policy limits accordingly.
- Cost and Number of Claims
Is it typically common for lawsuits to happen in your field? How much do lawsuits in your industry typically cost? If you’re not sure, one of our brokers can help you determine your risk level and choose the right policy limit.
Finally, you should also consider how much your business can afford to pay out of pocket in the event of a lawsuit. You should also envision a reasonable “worst-case scenario” in order to help you decide on the right policy limit.
Generally, we recommend most professionals to opt for a minimum of $2 million professional liability insurance protection. As lawsuits are very expensive (lawyers alone bill $500 or more per hour) costs can quickly escalate. Our liability insurance brokers can help you choose the right policy limit as well as make risk management recommendations for your business in order to protect yourself.