Key factor that insurance companies use to determine the maximum limit available
Insurance company guidelines for the maximum professional liability limit are generally linked to:
- The additional premium applying to the policy limit requested
- Versus the “minimum premium” per million limit guidelines that the insurance company has agreed to with its reinsurance company partners (i.e., generally $2,000 per million).
How do insurance companies price higher policy limits?
The cost to increase policy limits are usually based on “increased limit factors” that have been approved by the governing state department of insurance regulators.
What "Increased Limit Factors" typically apply when purchasing higher policy limits?
While each insurance company has its own “increased limit” factors, a representative example of such factors are as follows:
|
Policy Limit |
Increase Limit Factor |
|
$500,000 |
1.00 |
|
$1,000,000 |
1.25 |
|
$2,000,000 |
1.68 |
|
$3,000,000 |
1.94 |
|
$4,000,000 |
2.13 |
|
$5,000,000 |
2.32 |
How do “Increase Limit Factors” relate into policy premium?
For example, a $1,000,000 limit with a $10,000 premium. As the policy limit increases, this premium increases as follows:
|
Policy Limit |
Policy Premium |
Limit Calculation |
Add’l Premium Per Million Limit |
|
$1,000,000 |
$10,000 |
$8,000 x 1.25 |
NA |
|
$2,000,000 |
$13,440 |
$8,000 x 1.68 |
$3,440 |
|
$3,000,000 |
$15,520 |
$8,000 x 1.94 |
$2,080 |
|
$4,000,000 |
$17,040 |
$8,000 x 2.13 |
$1,520 |
In this situation, a Design Professional practice would be eligible for a $3,000,000 limit policy*.
* Because the “at least” $2,000 additional premium cost applies up to a $3,000,000 limit policy.
Are there options left if I really need higher policy limits?
Yes, non-admitted insurance companies (not governed to the same extent by insurance department regulators) can offer higher limit options… but at a higher cost*.
* Typically a $5,000 minimum premium per million rate applies.