For liability insurance, a policy limit is the maximum amount that will be paid out per term or per covered claim, depending on your policy. There may 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
Professional liability insurance can help cover your legal expenses if you’re sued by a client for financial loss due to your provided professional services or advice or failure to provide them.
This includes defense costs (which you need to pay even if you are innocent) as well as settlements or awards. It doesn’t usually cover intentional harm or criminal acts, but it can cover allegations of the following:
- Misrepresentation
- Failure to provide services or advice
- Negligence
- Errors
- Libel and slander
- Inaccurate advice
- Loss of 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 for PLI?
A policy limit is the maximum amount that will be paid to you by your insurance provider 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 sued you for financial loss and your defense costs amounted to $250,000. Another client sued you later that year and is awarded $750,000, and your legal defense costs amounted to $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.
This is why choosing the right policy limit is very important; you want to avoid having to pay these expenses out of pocket.
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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 defense costs, settlements, and 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:
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Contract Requirements
Many contracts in Canada require a minimum of $1 or $2 million for professional liability insurance. Be sure to check the requirements of contracts before sealing any deals.
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Industry
Consider the risks associated with your field and how common lawsuits can be in it. You can ask your network of professionals for information on what protection their businesses have or talk to a broker to get a clearer idea of the risks and common coverage in your industry.
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Individual Business Risks
Evaluate the risks unique to your business. Do you take on specialty projects? Do you work with a particular clientele? Every business is different, and specific business practices may indicate that your business has a higher or lower risk of being sued. Our brokers can help you explore the implications of the specifics of your business on your liability insurance policy limits.
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Your Clients
The number of clients you have, their status, their industry, and the value of your contracts can all impact your chances of being involved in a lawsuit. Generally, the bigger the numbers, the higher the chance of a lawsuit, and you should choose your policy limits accordingly.
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Cost and Number of Claims
Are lawsuits a common occurrence in your field? How much do they typically cost? If you’re not sure, one of our brokers can help you determine your risk level and choose the right policy limit. You should also consider how much your business can afford to pay out of pocket in the event of a lawsuit. It can be helpful to envision a reasonable “worst-case scenario” to help you choose the right policy limit.
Get Professional Liability Insurance and Manage Your Risks with EasyCover
Generally, we recommend that most professionals opt for a minimum of $2 million in professional liability insurance protection. As lawsuits are very expensive (lawyers alone charge $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 to reduce your risk of a lawsuit.
Also, below you can check out all main coverage services offered by EasyCover: