What is professional liability insurance?
Professional Liability Insurance
Professional liability insurance protects small businesses by covering legal defense costs, settlements, and judgments from client lawsuits claiming that work was unsatisfactory.
Does your small business need professional liability protection?
Professional liability insurance is designed for businesses that make a living off their expertise.
Even the most experienced and thorough professional service provider makes mistakes. Unfortunately, clients may not be so understanding if your error costs them considerable time or revenue.
A Professional liability policy helps protect you from unsatisfied clients. For example, if you miss a project deadline, make an omission in your work, or provide ineffective business advice, your client may sue.
If you’re served with this type of lawsuit, your professional liability policy will cover legal defense costs up to your policy limit.
Does professional liability insurance cover losses related to the coronavirus (COVID-19)?
Professional liability protects your business when a client sues over your work performance. That means it might provide coverage when a client sues over a project you were unable to finish or a deadline that you missed due to the coronavirus.
Keep in mind that many business insurance policies exclude communicable disease coverage. If you think you’re eligible for a claim, contact your insurance company’s claims department.
Professional liability insurance typically covers:
- Work mistakes and oversights
- Undelivered services
- Missed deadlines
- Claims of negligence
While most of these terms are clear-cut, claims of negligence can be more complicated.
When a client hires you based on your specialized skills, they are entitled to a reasonable standard of care. If your work causes financial damage to a customer, you can be accused of professional negligence.
Do some clients require you to carry professional liability insurance coverage?
Yes, clients may request a certificate of insurance as proof that you have coverage. They want peace of mind that if you don’t meet their standards, they can recoup their losses.
Maintaining your professional liability coverage offers you the same assurance.
Many professional liability policies are written on a “claims-made” basis with a retroactive date. This means that in order to collect your insurance benefits, your professional liability policy must be active:
- When an alleged mistake occurs, and
- When the claim is filed
With a claims-made professional liability policy, your coverage kicks in only when you file a claim during the policy period. Continuous coverage is key if you don’t want to pay out of pocket for lawsuits.
How much does professional liability insurance cost?
There are several factors that affect a professional liability premium, including:
- Industry and risk factors
- Coverage limits and deductible
- Business size
- Day-to-day operations
- Claims history
Professional liability insurance costs about $60 per month. Most of our small business customers (48%) pay between $500 and $1,000 per year for their policies.
How does professional liability insurance protect different professionals?
Accountants and auditors
Professional liability coverage for accountants and auditors covers the costs of lawsuits based on accounting errors, data entry errors, miscalculations, or lost documentation. Because the policy offers indirect financial protection for the client, some clients will require proof of insurance before they agree to work with your firm.
Architects
Architects can get professional liability protection against accusations that a building design does not meet project specifications, was delivered late, or contained errors. A client contract might include a clause that requires this policy’s protection.
Consultants
Professional liability insurance for consultants offers financial compensation for lawsuits alleging ineffective advice or inaccurate projections. Some clients may ask you to provide proof of professional liability insurance before they agree to work with you.
Engineers
Professional liability insurance for engineers covers financial protection from lawsuits over disputes such as cost overrun, delivery delays, and problems with construction materials. You may need to provide proof of professional liability insurance to a client, partner, or licensing board for some projects.
Is there a difference between professional liability
and errors and omissions insurance?
The short answer is no. Different industries use different terms for the same type of coverage. You may also see professional liability insurance called errors and omissions (E&O) insurance, even though they’re identical except for the name.
Errors and omissions insurance is used most often for insurance agents, real estate agents, tax preparers, and IT professionals.
Lawyers and doctors refer to this policy as legal or medical malpractice insurance. (While IronPoint doesn’t offer quotes for malpractice insurance, our licensed agents are happy to provide doctors and lawyers the other critical insurance they need.)
How does professional liability insurance differ
from general liability insurance?
from general liability insurance?
General liability and professional liability both protect against common small business liability claims, but they cover different types of lawsuits.
General liability insurance covers customer bodily injuries, customer property damage, and advertising injuries. In contrast, professional liability policies covers any legal defense costs when a client or customer suffers a financial loss due to your professional services or advice.