What Financial Professionals Should Know About Shared Limits vs. Individual Limits

When it comes to your Errors and Omissions Liability Insurance, small policy details—such as shared limits versus individual limits—can make a huge difference.

Consider the following: a corner bakery you visit every day runs out of your favorite pastry just before you reach the front of the line. A few more customers came in early that day wanting the same item and now there aren’t any more.

It’s inconvenient, but in this case, the bakery will just bake more pastries and you’ll be able to have your favorite again tomorrow. But what if something more substantial than a pastry was unavailable when you really needed it, like your access to your E&O coverage? If your policy coverage has a shared limit, that’s a possibility.

Shared Limits vs. Individual Limits

Insurers offer errors and omissions insurance coverage with differing levels of protection to meet the needs and risk exposure of different industries and job roles. One coverage variable is a policy’s limit of liability, which can be either shared or individual.

A shared limit means that you and other insureds share an aggregate limit of liability. An individual limit means that each policyholder has their own aggregate limit. Liability limits are specified as a pair of dollar figures, such as:

  • $1,000,000/$3,000,000

The first figure represents the policy’s maximum per-claim limit. This example policy has a maximum limit of liability of $1,000,000 per claim. The second figure represents the policy’s aggregate dollar amount of coverage for all claims during the policy year. In this example, the aggregate limit of liability is $3,000,000 per year.

Many industry groups and associations offer group E&O policies with a shared aggregate limit, which can offer individual insureds a lower price on their premiums. However, this also means that all the insureds under the group policy will share that maximum annual limit of liability.

Adequate Protection for Advisors Is a Must

A shared limit makes sense in certain cases. Some professionals share a limit as an individual with a corporate entity they control, or a liability limit may be shared among partners in a small practice. With a shared aggregate limit, there is a chance the policy limits could be consumed by claims from other group members by the time you need it—just like the corner bakery running out of your favorite pastry.

In some circumstances, the risk of a shared limit is low. However, when it comes to E&O liability for financial professionals, a shared limit may not be enough protection.

While financial professionals have always been held to a very high standard, regulatory compliance demands are growing. The new Regulation Best Interest ruling from the SEC is already impacting financial professionals, leading to added scrutiny, industry confusion and individual state regulatory action. Even advisors who perform their fiduciary duties properly can still face a stressful claim or costly lawsuit from an unhappy client. In this environment, having the right liability limits is key.

The Lockton Affinity Difference

While other industry groups and associations offer Errors and Omissions Liability Insurance policies with shared aggregate limits, Lockton Affinity Advisor offers coverage with individual limits, so that you will always have access to your full aggregate limits. Plus, Lockton Affinity Advisor coverage meets ERISA standards, including services as an ERISA 3(21) and 3(38) advisor.

While you can’t guarantee your favorite pastry will always be available, you can make sure your business is fully covered with Lockton Affinity Advisor. Apply now in minutes.