What it is:
Malpractice insurance pays for the mistakes health care professionals make due to negligence or harmful decisions. The premium can be very high, and these premiums are a controversial cost of doing business that contribute to the cost of medical care. In many states, most health care providers are required to carry malpractice insurance.
How it works (Example):
Let's say John Doe needs surgery to amputate his left foot. The doctor removes the right foot by mistake. John Doe understandably is very upset and sues the doctor for malpractice. A jury awards him $15 million. The doctor does not personally have $15 million plus attorney's fees: His malpractice insurance policy covers the costs.
Why it Matters:
Malpractice insurance is liability insurance for doctors and other health care professionals.