Most professional indemnity policies and a range of other liability policies have a costs inclusive excess. That means that you must contribute your excess not only when you pay a settlement to a third party but also when legal costs are incurred in the defence of the claim.
Why is that? When you face a liability claim, you have two major risks. The first is that you might be at fault and need to compensate (pay) the third-party claimant. The second is that you might need legal assistance to defend the claim or to negotiate a reasonable settlement. The legal costs could be high and in certain cases close to or exceeding the value of the claim made against you. The policy recognizes both risks and imposes an excess accordingly.
Does you policy have a costs inclusive excess? Check it today.