Understanding Malpractice Insurance Clauses
We love talking to physicians about lowering their malpractice insurance premium and improving their coverage. In many instances, we find additional savings with better coverage through another carrier. The problem is that most clients assume they need to wait until their current policy expires to change carriers, which could be a year if they just renewed.
Physicians can move their malpractice insurance coverage mid-term, but looking into the current policy’s cancellation clause will help them in the following ways:
- It will clarify their coverage needs.
- It will show the real costs and savings.
- It will enable them to make a better decision.
Let us show you how by looking at malpractice insurance cancellation clauses from two different carriers. For our illustrations, assume you currently have a policy that runs January 1, 2013 to January 1, 2014. The annual premium is $60,000. You decide to cancel on March 15, 2013.
Malpractice Insurance Cancellation Clauses
Here is the policy Cancellation Clause for Insurer 1
If the policy or a SCHEDULED NAMED INSURED is canceled by the FIRST NAMED INSURED : The FIRST NAMED INSURED will receive a refund of the pro-rata unearned premium amount.
Here is the calculation of your $48,000 refund:
Here is the policy Cancellation Clause for Insurer 2
This policy may be canceled at any time by the policyholder by sending advance written notice to us stating when thereafter such cancellation shall be effective. We will return any unearned premium, less the customary short rate fee. However, the policy cancellation will still be effective even if you have not yet received any such return premium due you.
Here is calculation of your $43,200 refund:
The industry customary short-rate penalty is 10%. Note that you would have lost $4,800 if the second carrier provided your coverage.
Malpractice Insurance Strategy
There is one caveat here. We have found that when an insured pays the current policy in quarterly installments and then cancels coverage on the next quarterly installment due date, the carrier does not usually balance bill the client for the penalty amount. In addition, similar giving up players in sports, if an insurance carrier wants to let go of an insured, they are most likely going to allow a pro-rata cancellation.
Knowing how your insurer calculates the return premium if you cancel coverage mid-tem will help you make a better decision in whether to move coverage.
In many cases, we have found that the premium savings we have provided with a new carrier outweigh the short-rate penalty amount. For additional information on specific insurance coverages, check out our Education Page.
We are Here to Help!
What specific questions do you have about your coverage? We would love to hear from you. Leave your comment below:
As always, we are always here to provide a complimentary coverage review.