Professional Liability Insurance: What Does It Cover?

Professional Liability Insurance, also known as Errors and Omissions Insurance, is a specialized coverage that safeguards professionals and businesses from financial losses resulting from claims of negligence, mistakes, or inadequate service in their professional work.

Key Takeaways

  • Professional liability insurance serves as a safeguard for businesses facing allegations of negligence. 
  • This type of insurance is commonly utilized by professionals like accountants, architects, IT specialists, doctors, and service-contracting professionals.
  • The cost of professional liability insurance typically falls within the annual range of $500 to $1,000, making it a considerably more economical option when compared to the expenses associated with hiring a lawyer and covering court fees and related costs.

Professional Liability Insurance Definition

Professional liability insurance, also known as PLI, is crucial for professionals like accountants, lawyers, and doctors. It safeguards them from client claims, particularly those involving negligence and professional errors. Unlike standard liability policies, PLI covers mistakes made in their professional work.

Professional Liability Insurance Definition

Professional liability insurance has different names depending on your profession, like medical malpractice for doctors or errors and omissions for real estate agents. It’s unique and not part of homeowners’ or standard business policies.

There are two types: claims-made and occurrence policies. Claims-made covers you if a claim and incident happen during the policy. Occurrence covers even if the incident was earlier but you’re now sued.

It protects you financially from claims during the policy for errors or negligence in your professional work. Remember, it doesn’t cover criminal cases or all legal issues, just what’s in the policy.

Professional liability insurance for small businesses provides protection against claims related to:

  • Negligence: When your services or your company’s actions result in harm or injury to a client.
  • Misrepresentation: If a client alleges that false or misleading information led them to enter into a contract with you or your company, causing them harm.
  • Inaccurate advice: When a customer claims that advice you provided caused them harm.
  • Personal injury: If someone accuses you or your business of making false statements that harm their reputation, whether those statements are true or not.
  • Copyright infringement: When someone asserts that you used their copyrighted work without their permission.
  • Defense costs: Professional liability insurance can cover the costs of defending yourself if a client sues you over mistakes in the professional services you provided. This includes attorney fees and other expenses related to legal proceedings.

Examples of Professional Liability Insurance Does Not Cover

Here are some examples of what the insurance typically does not cover:

  • Employee injuries
  • Employee discrimination lawsuits
  • Business-related vehicle use
  • Physical injury or damage to business property
  • Customer injuries or property damage

Additionally, issues related to cyber liability, data breaches, and other technology-related problems may not be included in standard policies. However, you can obtain separate insurance for these types of risks.

On the flip side, professional liability insurance does cover various professional mistakes and failures, such as:

  • Errors and oversights in your services
  • Services that were promised but not delivered
  • Missing deadlines
  • Negligence or failing to meet industry standards
  • Breach of contract

It’s crucial to understand what is and isn’t covered by your professional liability insurance policy to ensure you have the right protection for your specific profession and circumstances.

Professional Liability Policy Wording

Professional liability insurance policies can vary in wording from one provider to another. Some policies may use language that makes them easy to compare, while others might have significant differences that make what seems like identical coverage not actually the same.

Professional Liability Policy Wording

For example, consider these two phrases:

  • “Negligent act, error or omission”
  • “Negligent act, negligent error, or negligent omission”

The first phrase, “negligent act, error or omission,” covers losses or situations resulting solely from professional errors or omissions or a negligent act. It does not cover errors or omissions that are not considered negligent.

On the other hand, the second phrase, “negligent act, negligent error, or negligent omission,” is interpreted differently. To be covered, an error or omission must be determined to be negligent, not just an error or omission.

If you want all five types of incidents to be covered, the clause might need to be worded as “negligent acts, negligent errors, negligent omissions, errors, or omissions.”

Before you buy a policy, it’s wise to consult with a lawyer who is familiar with professional liability insurance. This ensures that you fully understand the coverage and that you won’t face a situation where you’re not covered because of the specific wording used by the provider.

How Much Does Professional Liability Insurance Cost?

The cost of this insurance varies depending on several factors. It relies on your location, your specific profession, any previous claims against you, the number of employees you have, and your years in business.

Similar to other types of insurance, the price you pay is influenced by the coverage limits and deductibles you choose. According to Insureon, the average monthly cost for professional liability insurance is around $59, with most policies ranging from $500 to $1,000 per year.

Who Needs This Insurance?

If you’re employed by a company that provides services, that company should have professional liability insurance (PLI), and your work should be covered by their policy.

However, if you’re a small business owner offering professional services or working with other businesses on a contract basis, it’s a good idea to think about getting this type of insurance. Some examples of professionals who should consider having this insurance include:

  • Consultants
  • Engineers
  • Insurance agents
  • Real estate agents
  • Brokers
  • Architects
  • Accountants
  • Financial advisors

How to Find the Best Professional Liability Insurance

How to Find the Best Professional Liability Insurance

Know How Much Coverage You Need

Determining the right amount of professional liability insurance is crucial and depends on factors like your industry, company size, and risk level. Consulting with an independent insurance agent is a wise step to help you choose the appropriate coverage.

The coverage limits for professional liability insurance can vary, typically ranging from $250,000 to $2 million. It’s worth noting that a significant majority of Insureon policyholders, specifically 63%, opt for a $1 million professional liability insurance policy.

Compare Insurance Quotes

Engaging in side-by-side shopping by comparing business insurance quotes from multiple insurance companies is a valuable approach. It allows you to assess which policy provides the coverage you need while remaining within a reasonable cost range.

Look for Discounts

Certain insurance companies provide discounts when you bundle professional liability insurance with other forms of small business insurance.

FAQs

What is proof of professional liability insurance?

A certificate of liability insurance serves as evidence that you possess professional liability insurance, which may be a requirement from your client or profession. This certificate contains essential details such as your coverage limits, the name of your insurance company, policy number, and the policy’s start and end dates.

Usually, your insurer will furnish you with a certificate of liability insurance without any additional charges. In case you misplace it or require an extra copy, you can usually obtain one through your insurer’s online portal or by getting in touch with the insurance company directly.

Is the insurance the same as errors and omissions?

Professional liability insurance, often referred to as errors and omissions (E&O) insurance, is a type of small business insurance that provides coverage for claims related to mistakes in professional services. This includes services that are inaccurate, delayed, or not delivered as promised. This insurance safeguards your business by covering expenses like legal costs, judgments, and settlements in the event of such claims.

Who Should Get a Professional Liability Insurance Policy?

Professionals and businesses offering services to customers should consider obtaining a professional liability policy. These policies provide coverage for claims made against you and your company in cases of professional errors, mistakes, judgments, or service delivery failures.

What Are the Two Basic Types of Professional Liability Policies?

There are two main types of professional liability insurance: claims-made and occurrence.

  • Claims-made policies require the policy to be active both when the event occurred and when the lawsuit is filed.
  • Occurrence policies cover any eligible claim stemming from an incident that took place while the policy was active, regardless of when the claim is made.

What Is the Difference Between Personal and Professional Liability Insurance?

Personal liability insurance provides coverage for damages or injuries that occur to others while they are on your personal property. On the other hand, professional liability insurance is designed to protect you in case claims are made against you for professional negligence, errors, omissions, or other issues that may arise when you provide professional services as part of your occupation.

The Bottom Line

Professional liability insurance provides coverage for small business professionals, including doctors, lawyers, accountants, and architects. This coverage is crucial due to its protection against professional errors, which can occur despite the utmost care and experience of a professional.

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