Insurance Policy Limits, Sub-Limits, and Deductibles
When you are renewing or buying a liability insurance policy such as a professional liability policy, a general liability policy, a cyber liability policy, or any other insurance policy for that matter, we recommend that you read and review your coverage. Make your insurance coverage review a standard part of your practice administrative support tasks.
Typically, an insurance policy coverage review will occur annually, and preferably at least 60 days prior to your insurance policy expiration date. You must read the insurance policy contract to fully understand the coverage, and do not rely solely on the Declaration page. Pay attention to the limits, sub-limits, and deductibles in your policy because these determine what you may pay out of your pocket when a claim arises. You may hear the term “X-Date” which is insurance-speak for the insurance policy expiration date. You will receive reminders to renew your insurance policy usually beginning 90 days prior to the policy expiration, so you can conduct your insurance coverage review and shop around with other insurance carriers.
Insurance carriers change their policy features, particularly the sub-limits for certain perils, and create exclusions. They also increase their premium rates and Endorsements. Moreover, consider your limits and sub-limits when performing services for certain employers or government entities. There are usually requisite minimum levels of insurance coverage required by these entities which are defined by minimum limits, sub-limits, and perils.
Insurance Limits and Sub-Limits
The insurance policy limit is also called the limitation of risk. These terms mean essentially the same thing. They are the total amount of losses allowed to be paid under an insurance policy expressed as either, on a per-occurrence basis such as per accident or incident; or on an aggregate basis such as all losses for the policy term, usually one year. In other words, the maximum amount of money an insurer (your insurance carrier), will pay toward a covered claim.
The limit is the largest, or aggregate amount that the insurance carrier will pay for a covered loss under the insurance policy contract. Many policies have multiple limits such as per incident or per person. Many policies limit the actual number of occurrences or incidents in a given policy year period.
Many professional liability policies have a $1 million limit and a $3 million aggregate limit per policy year. This means the policy pays up to $1 million per occurrence (a single claim), and $3,000,000 in the aggregate during the policy term year. General Liability insurance policies purchased by small practices, small businesses, and individuals have similar limits. Some professional liability policies have limits as high as $3 million/$5 million.
The covered losses include legal defense expenses, and indemnity, which include settlements. It is imperative that when you evaluate liability insurance policies, that you understand the sub-limits, limits, and aggregates. For example, many general liability insurance policies limit fire liability to only $50,000 or $250,000 per occurrence. This is a sub-limit and is part of, rather than in addition to the policy limit. These are extra limitations regarding certain losses that essentially reduce your coverage. The NASW RRG General Liability policy has a $1,000,000 fire sub-limit with no specified peril frequency limit.
Many insurance carriers limit a fire peril incident to only one fire incident per policy year. In other words, you pay the costs arising out of the second fire in that policy year.
Another example is a Deposition claim sub-limit of $5,000 with a frequency limit of five Deposition peril claims per policy period year.
You must understand the nature of your practice and decide what sub-limits, limits, and aggregates that best fit your risk coverage needs. The sub-limits, limits, and aggregate limits are specified on the Declaration page, but not all exclusions are noted, so you must thoroughly read your insurance policy contract to know what is covered.
The limit is the largest, or aggregate amount that the insurance carrier will pay for a covered loss under the insurance policy contract. Many insurance policies have multiple limits such as per incident or per person. Many insurance policies limit the actual number of occurrences or incidents in a given policy year period.
A deductible is the initial amount of the insurance benefit that the policyholder must pay first when a claim is reported and approved by the insurance carrier. It is referred to as the initial amount, or the “first-dollar” cost paid by the policyholder. After the deductible is paid, then the insurance policy responds to the claim, but only up to the stated policy sub-limit or limit. Many insurance carriers design their insurance products with deductibles based on their loss experience from frequent types of claims. Frequent claims categories invariably cause sub-limits for those categories, frequency peril limits for those categories, and deductibles. The insurance carriers seek to control claims losses, so they use a combination of sub-limits, allowable peril frequency, and deductibles as loss mitigation tactics.
The deductible requires the policyholder to pay for the defined first dollar risk for frequently occurring incidents, and/or for defined perils, and often for all claims sustained up to the defined policy deductible. Generally, the more deductibles in an insurance policy, the lower the premium should be. But that is not always the case. Many insurance carriers want to charge you the most premium possible and still inflict upon you a lot of deductibles, and sometimes very high deductibles. The NASW RRG has no deductibles in any of its insurance policies.
Make sure that you understand how your insurance policies operate. Check the policy limits and the sub-limits by peril type. Check the frequency limits for each type of peril. Verify what the deductibles are. Also, check the insurance policy exclusions. You need all of this information to properly select your insurance coverage and to compare insurance carriers’ policy coverages and premiums.
Thank you for all that you do! Your profession is truly noble and needed now more than ever. Good luck and stay healthy!