A First Dollar Coverage Policy Offers Peace of Mind — at a Cost
There is an obscure clause found in some insurance policies that protects policy holders beginning with the very first dollar. But understanding first dollar insurance may mean the difference of thousands of dollars if something bad does happen.
First dollar coverage is another way of saying that your insurance policy, or at least a portion of it, comes without a deductible. To unwrap this concept, let’s first explain what is first dollar coverage and where you can find it.
First-dollar coverage can occasionally be found on homeowners policies and auto insurance policies, among others. However, it is most commonly discussed in the context of health insurance policies, professional liability insurance and business insurance.
First dollar insurance and healthcare
In the context of comparing health insurance plans, first dollar insurance means your policy will pay as soon as the policy is in place without copayments or deductibles. This is not your typical setup, though.
Most HMOs and PPOs are not set up as first dollar coverage, though for a much higher premium it can be done.
First dollar deductible plans are most often available as supplemental healthcare plans, such as a Medicare supplemental plan, or a hospital income plan.
They aren’t meant to be your primary coverage, but rather help ease the costs incurred before your primary policy kicks in.
And they come at a premium over what you are already paying for your primary insurance. But, again, if you are buying a super platinum plan, then it is possible to find first dollar insurance to cover your healthcare.
Critics of first dollar insurance say that it encourages overuse of healthcare. But proponents point out that if there is a steep deductible, people might be hesitant to pursue care when a problem is manageable, allowing it to balloon into a much more difficult-to-treat problem that costs more in the end.
Getting a first dollar defense
In a professional liability policy, a first dollar deductible defines how legal defense costs are paid.
So, let’s say your policy protects you from professional negligence damages. It obviously costs money to defend your case in court.
A first dollar insurance policy would pay for your defense and you would only have to pay your deductible once a judgment was issued. So, if there was no judgment , you wouldn’t have to pay out of pocket.
This is why first-dollar coverage is also known as “expenses and damages coverage.”
The other type of policy would be a straight deductible option. In that case, you would need to pay your deductible to help cover the cost of the lawyers and the court defense. So, even if there was no judgment, you would have to cover your deductible.
This would be simply a “damages” policy.
It breaks down like this. Say a professional was sued because a client said some job was done incorrectly. And let’s say that lawsuit was for $500,000. And let’s also say that the policy had a $10,000 deductible. And let’s say it cost $30,000 to defend that case in court.
And let’s also assume that the professional wins in court and no judgment is issued.
Now, if the professional had a first dollar defense clause built into their policy, then the insurance company would eat the $30,000 to defend the case and the professional wouldn’t have to come out of pocket at all.
If the professional had a straight deductible plan, then even though they won the court case, they would have to write a $10,000 check to cover the deductible portion of the $30,000 defense costs.
First dollar is considered a more premium coverage, so it typically comes with a higher monthly cost than a straight deductible policy. And in many cases, such as with policyholders considered high-risk, first-dollar coverage may not even be an option in the first place.
And, again, in rare cases property and casualty policies, such as homeowners and auto policies, can be written as first dollar deductible plans, but that is exceedingly rare.
So, be sure to understand how your deductible comes into play before a lawsuit comes up. Because after the defense begins is the last time you would want to be learning about your deductible, especially if you thought you had first-dollar coverage but ended up having a straight deductible.