Learning about professional liability insurance can be time consuming when your specialty is architecture, engineering or another design field. Many of the insurance terms and conditions you’ll come across don’t come up in everyday conversation, meaning sometimes it feels like you’re reading a different language.
Understanding a policy’s terminology is important for feeling confident about your choice of coverage and knowing how to go about filing a claim. Here’s a brief introduction to insurance terms that architects, engineers and other design professionals need to know.
Insurance Terms for Architects and Engineers to Know
To help understand your insurance options, policy coverage, and claims process, it’s a must to understand some key insurance lingo.
Your coverage is the amount of risk or liability your insurance company agrees to be legally responsible for paying in the event of a qualifying insurance claim for a loss that you suffer.
This will be you, the policyholder, and/or your business entities you wish to cover under the insurance policy. When applying for coverage, all of your necessary parties should be named as insureds on the policy. Coverage will exclude those entities not named on the policy.
Note: Named insureds are those who need to be protected from a claim of negligence, not those parties who may seek reimbursement from you for such a loss.
Additional Named Insured
An additional party added to the coverage of an insurance policy is called an additional named insured. The additional named insured will have a right of recovery under the policy, but without the named insured’s obligation to pay the premium or meet other terms of the policy.
Note: Never allow a client or other stakeholder to become an additional named insured on your professional liability policy, as they won’t be able to file a claim against a policy to which they are a party.
The first page of an insurance policy is known as the policy declarations. It specifies the named insureds, policy period, location of premises, liability limits and other key information. Make sure this information is correct and keep the document for your records as proof of your insurance.
A covered loss is a financial loss for which your insurance company will pay insurance benefits according to the terms of your insurance policy. Covered losses are specifically defined in your policy documents.
Endorsements and Exclusions
An endorsement adds specific coverage to an existing insurance policy. An exclusion is a condition or event for which the policy does not provide coverage. Often endorsements and exclusions appear together since it is easier for insurers to exclude certain broad coverages and then add back in more specific coverage with endorsements.
Policy Per-Claim Limit
Your insurance policy per-claim limit is the maximum amount the insurer will pay for a single covered loss. With some policies, you can choose your own limit, with higher limits resulting in a more expensive policy. Some insurers offer shared limits that are shared between a group of insureds. At Lockton Affinity, we offer individual limits, so you always have access to your full policy limits.
Policy Aggregate Limit
While a policy per-claim limit defines the maximum amount payable for a single claim, a policy will also stipulate a higher figure, known as an aggregate limit, that sets the maximum amount the insurer will pay out for all claims under a policy during the policy period. This is usually a period of a year.
An insurance deductible is the amount of money you agree to pay out of pocket for a covered loss in the event of a claim, with your insurance covering the rest up to your policy limit. Choosing a lower deductible means more coverage, but at the cost of a more expensive insurance policy. Your deductible will apply each time you file a claim.
The insurance premium is the amount you pay for insurance coverage. Premiums are the responsibility of the named insured and may be billed on a monthly, quarterly or annual basis, depending on the policy and the insurer.
An insurance claim is a formal request for coverage of or compensation for a covered loss. When you file a claim, the insurance company will review your request and approve or deny the claim. Understanding your coverage and following the correct process for filing a claim helps ensure that your claim for a covered loss will be approved.
Claims Made Policy
This is a type of policy that covers claims made during the policy period, regardless of when the acts or omissions that led to the claim were alleged to have taken place. Claims made policies are the preferred format for all professional liability policies. When a policy is continuously renewed, the covered policy period includes the time since the original policy was placed with the insurer.
As opposed to a claims made policy, an occurrence policy provides coverage for an event that occurred while the policy was in force, even if the claim of a loss does not arise until after the policy has expired. Occurrence policy formats are rare in professional liability insurance.
Prior Acts Coverage
Coverage that protects against past acts or omissions that may result in a future claim is termed prior acts coverage. This is an option that is sometimes available with a claims made policy. Retroactive coverage depends on the claim being brought forth during the active policy period and the policyholder having no prior knowledge of acts or omissions that would result in the claim.
When You Receive Your Policy
When you receive your policy documents, read them thoroughly. You will find important information about how to file a claim. Also make sure all of your information is correct, especially named insureds, policy coverage, limits, endorsements and exclusions.
If you find a mistake in your documents, contact your insurance representative right away. Errors discovered early can usually be corrected, limiting your exposure to excess risk.
If you have other questions about your Lockton Affinity policy, be sure to contact us. We’re happy to help.