Picture this, after 40+ years of work you have decided it is time to slow down your law practice and settle into retirement. You are ready for the next phases of your life which may include traveling the world, taking up new hobbies, or simply finding the time to relax.
Preparing for retirement is no small endeavor, there is a lot to consider. One item that may be on your list is to take an extra look at your professional liability policy. As a Renewal Account Executive at Protexure, I’ve worked with numerous attorneys looking to retire and wondering what is next when it comes to their professional liability insurance.
Sometimes attorneys nearing their retirement will focus on cost-cutting, and insurance is one place they attempt to do so. It is common to see attorneys shop around for a lower premium at the end of their practice because, although they are not quite ready to close their firm, their caseload has substantially decreased and their premium has not.
I get it, perhaps in the eyes of the insured they’re thinking, “Why keep paying for the same amount if I'm doing less work?” Although a professional liability quote with a lower premium can appear flashy and appealing, when it gets down to the details, that may not be the best option.
At Protexure, we hear from attorneys in all phases of their career looking for professional liability policies. But, when it comes to attorneys who are close to retirement looking to switch to our policy, our advice is the same:
Stick with your current carrier!
While we would love to insure every attorney under the sun, we know that it is in the attorney’s best interest to stay put and we want to make sure everyone understands why.
Understanding How Claims Made Policies Affect Retirement
In order to understand why it is best to stick with your current carrier when considering retirement, you must first understand how professional liability insurance policies work.
Professional liability insurance policies are claims made policies, which means the policy provides coverage when a claim is made regardless of when the wrongful act occurred.
Claims made policies require a policy to be in effect in order to respond to a claim. With this type of policy, you have coverage dating all the way back to the day you started your first policy. The date you began your policy is known as your prior acts date.
Each law firm that carries professional liability insurance has a prior acts date associated with them. As long as the law firm has maintained continuous coverage, the firm will be covered for any claim that arises after the prior acts date.
A prior acts date should mean a lot to a retiring attorney because they have potentially built up 40+ years of work and all of that work has coverage under this claims made policy.
With a claims made policy, once you decide to retire, you must make sure all of your past work is covered. The best way to protect your work and ensure you are covered is to purchase an extended reporting period. Purchasing an extended reporting period will protect you from claims over prior work that could arise after you have retired.
Extended Reporting Periods for Retiring Attorneys
Extended reporting periods are essential, but they are costly.
Covering all of your prior work for the rest of time is a significant undertaking for an insurance carrier. To offset some of the risk, the carrier will slap a hefty price tag onto the endorsement.
Lawyers close to retirement will need to budget for this expense unless they have been insured with the same carrier for several years.
It is common practice across the professional liability insurance industry to offer those they insure a free extended reporting period if the attorney has been insured with the carrier for multiple years. At Protexure, for example, we offer a free extended reporting period endorsement after being insured with us for 3 consecutive years.
A free extended reporting period is a huge incentive for law firms to remain insured with their current carrier. It may be tempting to switch carriers for a lower price at the moment but in the long run, the free endorsement will save the firm more money.
If a free extended reporting period endorsement isn't enough of a reason to stick with your current carrier, then maybe the possibility of not even being offered one will be a bit more convincing.
Many professional liability policies require an attorney to be insured with them for a full policy term before they are eligible for an extended reporting period endorsement. Typically this means that the attorney needs to be with the carrier for at least a year before they can get this endorsement.
In some cases, attorneys are ready to retire but just need to finish up a couple of remaining cases. In this scenario, the attorney might decide that a lower priced policy is the route to go for the couple of months they still need to be insured.
Once the attorney finishes up their last case, they might attempt to cancel their policy mid-year and purchase an extended reporting period endorsement. They will find themselves ineligible for an extended reporting period in this case and all of their previous work will no longer be covered. The attorney’s attempt to save a couple of dollars now leaves them open to potential claims and financial ruin.
Extended reporting periods are a huge factor to consider when choosing to retire from the practice of law. You spent years paying premiums to ensure you were protected, now is the chance for you to reap some benefits and receive the remainder of your coverage for free.
Not switching carriers before retirement will ensure you can maximize these benefits.
Jeopardizing Other Policy Benefits
Besides the ever important extended reporting period, there are other policy features to consider when looking to switch carriers before retirement. Ultimately, if you choose to switch carriers, the policy you choose now will be the one in effect for the remainder of time. You might find the new policy you choose does not have the same extensions or coverage as your previous policy.
This can be especially concerning as a retiring attorney because, despite having wonderful coverage for years, now, if a claim arises, you may no longer be covered under this new policy.
For instance, policies can have different limits on coverage for disciplinary proceedings, regulatory proceedings, subpoena assistance, defendant reimbursement, crisis event coverage, and many more. Although you are not taking on any new work, the policy you cease practice under is what any potential claim will be filed under and will respond with.
If your prior work needs special coverage or endorsements, it is imperative to maintain a policy that you are familiar with and one that you already know will respond to the years of work you have already performed.