What is Professional Liability Insurance?
Professional Liability, otherwise known as E&O insurance, protects your business against claims of negligence, misrepresentation or mistake, as well as document or paperwork errors.
People working in certain industries may be required to have Professional Liability insurance in order to do business.
What is Professional Liability insurance?
What does Professional Liability insurance cover?
Professional Liability insurance can protect your business against allegations that your services, products or employees caused a third party some form of financial damage. This includes:
- Breach of contract
- Undelivered services
- Missed deadlines
A Professional Liability policy typically pays for your attorney fees and other legal expenses necessary to defend your business in court. It also covers any settlements or judgements you are required to pay as a result of the claim.
The coverage provided by a Professional Liability insurance policy applies even if you are not at fault. Defending your professional reputation can be expensive, even if the claim made against you is baseless. Professional Liability insurance provides an important financial safety net for both legitimate and meritless liability claims.
Professional Liability insurance covers incidents such as:
- Providing incorrect advice to a client around accessibility or other building standards
- Flaws in your work that require the client to pay for new materials and labor
- Alleged mistakes, even if you are not at fault
What is not covered by Professional Liability insurance?
There are limits to what Professional Liability insurance will cover. Professional Liability policies do not cover:
- Third-party bodily injury or property damage: A General Liability policy provides protection should a customer or other member of the public is injured on your business premises or you damage someone else’s property.
- Work-related injuries or illnesses: A Worker’s Compensation policy can help you or your employees get back to work following a workplace injury or illness.
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How does Professional Liability insurance work?
Many Professional Liability policies are what’s known as “claims-made” policies. They are typically written with a retroactive date and an extended reporting period.
The retroactive date means you are covered for events that happened on or after the date agreed upon in your policy (so long as your policy is active when the claim is made). This helps protect your business if a client alleges financial loss long after you’ve competed work for them.
The extended reporting period helps cover claims made after your policy ends. This means that for a limited period after your policy ends (typically 30 or 60 days), claims can still be filed and in many cases covered by the insurer.
A claims-made Professional Liability insurance policy helps protect your business against claims made from the retroactive date specified in the policy to the end of the extended reporting period.
Who needs Professional Liability Insurance?
There are many types of small businesses and occupations who could need Professional Liability insurance. This includes businesses that:
- Regularly give advice to clients
- Provide professional services directly to customers
- Represent their clients’ interest on their behalf
In many states, minimum amounts of Professional Liability coverage are required for some occupations, such as medical professionals and attorneys. Additionally, professional associations and some clients may also require you to carry this type of policy.
To learn more about the Professional Liability requirements in your area, consult your state or local laws or professional association.
How much does Professional Liability Insurance cost?
There are many factors that insurance companies use to determine the cost of Professional Liability policies. These include:
- Your industry
- The amount of revenue your business produces
- The risk management procedures you have in place
- Claims history
- The amount of coverage desired
Every small business is different. The unique risk factors your business faces mean that your policy and premiums may differ from other companies, even those within the same industry.
Professional Liability Insurance FAQs
Why do you need Professional Liability insurance? What type of businesses need Professional Liability insurance?
Professional Liability insurance helps protect your small business against financial loss. If a customer makes a complaint against your business, it could potentially cost thousands of dollars to defend your business and reputation—regardless of whether the claim is valid or not.A Professional Liability insurance policy can cover the legal fees, settlements or judgements resulting from a claim. Without one, you could be left out of pocket for these expenses, need to borrow from your personal savings, or even be forced to close your business. Professional Liability insurance helps shield you and your small business from financially negative outcomes.
Most small businesses are not required by law to have Professional Liability insurance. However, a policy may be a wise investment for many types of businesses. Professional Liability policies are often purchased by architects, contractors, engineers, home health providers, real estate agents, as well as by many other people in a variety of occupations.
If you are unsure if you or your small business needs Professional Liability insurance, it may help to consider the following questions:
- Do you ever work with clients who require that you have your own policy?
Some clients require you to have your own Professional Liability insurance policy to work with them.
- Do you provide professional services directly to customers?
A small mistake in your work could mean big financial losses for a customer. Professional Liability insurance can help protect your business from these types of claims.
- Do you offer clients advice based on your business expertise?
Errors, omissions or misunderstandings can happen when providing clients with professional advice. Professional Liability insurance is built to protect you if this happens
If you answered yes to any of these questions, you may need Professional Liability insurance.
Is Errors and Omissions insurance the same as Professional Liability insurance?
Yes, Errors and Omissions (E&O) insurance is the same as Professional Liability insurance. The two names are often used interchangeably. However, you may be more likely to hear about E&O insurance if you work in certain industries, such as real estate or accounting.
Though they go by different names, an E&O insurance policy covers the same things as a Professional Liability insurance policy. This includes shielding your small business against claims of:
- Professional negligence
- Inaccurate advice
- Missed deadlines
- Undelivered services
E&O insurance is important for many small businesses. No matter how careful you or your employees are, mistakes do happen. An E&O insurance policy helps protect your business and reputation in these instances.
E&O insurance helps cover the costs associated with defending yourself against claims of negligence, misrepresentation, and omission. This includes hiring an attorney, paying court costs, and covering any settlements or judgements you are required to pay. Without E&O insurance, your business could be responsible for thousands of dollars in legal fees, even if the claim has no merit. These costs are often devastating for small businesses and sometimes result in the closure of business.
Some states may require small businesses or professionals in certain industries to have E&O insurance to operate in the state. They may set requirements for the minimum amount of errors and omissions coverage you will need to do business. Check with your state’s small business center, department of insurance, or local professional groups to learn more about the requirements in your state.
Do some clients require you to carry Professional Liability insurance coverage?
Yes, some clients do require businesses and professionals they work with to carry Professional Liability insurance. In some cases, clients may require proof of your insurance coverage to win a business contract with them. You may be asked to provide your certificate of liability insurance (CLO) to verify that you are insured and the amount of coverage you have.
Clients often require coverage to provide peace of mind that certain liabilities or losses will be covered should things go wrong during a project. For example, you and a designer are working together on a project for a mutual client. The designer misinterprets your renderings and orders expensive materials which won’t work with your plans. The mutual client sues both of you for professional negligence, demanding that you reimburse them for the unusable materials. Professional Liability insurance will help cover the cost of an attorney to represent you, and any judgements or settlements you are ordered to pay if you are found to be at fault.
Other clients may require you to have your own Professional Liability insurance so they know they will not be held liable for damages or substandard work. For example, one of your designs has a flaw, making it necessary for the builder to tear down his work and start over. Your client sues you for the cost of new materials and labor to rebuild the part of the project that is damaged by your flaw. Professional Liability insurance will cover this claim up to your limits of liability.
What are the things you need to consider before purchasing Professional Liability insurance?
Choosing the right Professional Liability insurance policy for your business is important. There are many things you may need to consider.
Before purchasing Professional Liability insurance, ask yourself these questions:
- Are there minimum amount of coverage requirements in my state for my occupation?
Some states require Professional Liability insurance for certain occupations and businesses. They may also set minimum coverage amounts to operate in the state. Contact your state’s small business development center to learn what is required in your state.
- How much coverage does my business need?
Regardless of what is required by law, the amount of coverage you need will likely depend on several factors. These may include things like the size of your business, your industry and occupation and the level of risk you anticipate.
- What are the risks of my occupation or business?
Every business is unique. Your Professional Liability policy should provide coverage for the unique risks you’ll face.
- Will Professional Liability insurance cover all these risks?
Professional Liability insurance may not cover every type of risk your business may face. You may also need other types of insurance, such as General Liability or a Business Owner’s Policy, to fully protect your business.
- What is the cost of a policy?
The cost of Professional Liability insurance depends on many factors. While the amount you pay in premiums is an important thing to consider, the least expensive policy may not provide the best coverage for your business. Be sure to weigh all factors, including price, before purchasing a Professional Liability policy.
How do I get Professional Liability insurance?
Our team of knowledgeable and friendly support staff are here to help you through every stage of the process and can assist with anything a traditional agent would help you with. There to guide you through the initial questions about your policy, up to renewal, we will be there as the needs as your business grow and change.
Get started today by either filling out the online application here or call one of our agents today at 1-877-900-9998.
How much Professional Liability insurance do I need?
We know you are busy trying to run your business, so we won’t bore you with the nitty-gritty. Like most purchases in life, the higher the quality and level of service of the product, the higher the price tag and the same goes for Professional Liability insurance policy premiums. A policy with increased coverage is going to cost more than a policy with a lower level of coverage.
Each business is different and exposed to varying risks creating its own unique insurance needs. There isn’t a one size fits all policy when it comes to Professional Liability insurance, but there are factors that can affect the pricing and level of coverage you may choose.
To get an understanding of what policy limit options are available, most insurers offer limits of $500,000, $1million and $2million with $1million being the most commonly selected limit.
There are a few factors that you need to consider when calculating the amount of insurance your business needs. This includes assessing the level of risk you anticipate, what deductibles you can afford and the type of business you run.
What’s the difference between General and Professional Liability insurance?
General Liability insurance provides protection for any physical injury that may be caused to people or damage to their property caused by your business operations. An example of a General Liability claim could be a delivery driver who trips and hurts themselves in your store or accidentally spilling a hot drink on a customer’s laptop causing bodily injury.
Professional Liability insurance provides coverage for claims of negligence related to your professional services or advice. A client may make a claim for the financial losses they have suffered, unlike a General Liability claim for bodily injury or damages.
Do I need General and Professional Liability insurance?
General Liability and Professional Liability insurance are two different kinds of policies designed to cover different types of risks. These are some examples of situations when you may require having both of these coverages in place.
- Provides protection against business liabilities– Both General and Professional Liability insurance provide peace of mind and protection if a claim against your business were to occur. They provide financial protection from the incidents caused, helping your business to carry on and keep operating as it would have before a claim.
- Contractual obligations– if you are faced with a specific contract, it is commonly required that businesses must hold a certain level of General or Professional Liability insurance before they can start working for them.