Q: What is a malpractice deductible, and is it any different from other types of insurance deductibles?
A: Generally, a deductible or retention is the amount the insured must pay before the insurance carrier will begin paying its share. In regards to the medical industry, a malpractice deductible typically must be paid by the physician before the insurance carrier can begin paying legal fees and representing defense in court. In most situations, a higher deductible means a lower premium, and vice versa. But in some cases there will be a minimum premium and the deductible will have no impact on the price.
Q: What deductible options are there?
A: In the malpractice world, there are two different deductible options. The first is Indemnity-Only (sometimes called “Loss-Only”) deductible, and it requires the insured to pay the deductible only when a payment of indemnity needs to be made by the insured.
The second type is “Indemnity and Expense,” which requires the insured to pay the deductible even if an indemnity payment doesn’t need to be made. In other words, the deductible is applied to the costs incurred by legal fees. If a claim is filed, you pay the deductible.
Q: When would I have to pay the deductible in a lawsuit?
A: This question is probably best answered with a scenario:
Let’s say you are being sued, and your policy comes equipped with a $5,000 Indemnity-Only deductible. The suit has been decided in your favor, and there is no settlement or indemnity that you owe. Thus, you do not have to pay a deductible.
But let’s say you must settle the case and you are required to pay indemnity of $25,000 for compensation. Here, you would need to pay a $5,000 deductible for the insurance carrier to pay the remaining $20,000. In the same scenario, let’s say you have Indemnity and Expenses deductible of $2,500. Regardless of the outcome of the case, payment of this deductible is required for any legal fees incurred by the carrier, and settlements or indemnity may be an additional expense on top of that.
Q: What kind of deductible is best for my practice?
A: If you expect a large number of suits (i.e. you work in a high-risk specialty), it may make more financial sense for you to have lower deductibles tied to a higher premium. In the end, this could save you money because the deductible (especially if it’s Indemnity and Expenses) will need to be paid every time you are taken to court.
Additionally, there are some non-admitted and admitted carriers that do not require a deductible with certain kinds of policies.
To get personalized recommendations on what deductible would best fit your practice, give us a call today at (805) 499-7300.