Professional Liability
Insurance (PLI), also known as Errors and Omissions (E&O) insurance,
protects professionals against claims of negligence, errors, or omissions in
their services. It covers legal defense costs and any settlements or judgments.
PLI is essential for professionals like doctors, lawyers, consultants, and
architects. It does not cover criminal acts, bodily injury, or property damage.
The cost depends on the profession,
business size, coverage limits, and claims history. Policies can be claims-made
(covering claims made during the policy period) or occurrence-based (covering
incidents during the policy period). Professionals should compare options,
consider coverage limits, exclusions, and insurer reputation when choosing a
policy.
A claim against your company, even if
baseless, can lead to costly legal fees and significant financial strain.
What Is Professional Liability Insurance?
Professional liability insurance is a type
of business liability coverage that protects your small business from claims of
mistakes in professional services, even if the claims are unfounded. Also
called "errors and omissions insurance," it is a crucial element of
comprehensive small business insurance policies.
The
name of professional liability insurance can vary by profession:
- Medical malpractice insurance is a type
of professional liability insurance for
healthcare professionals like doctors, nurses, therapists, and counselors.
- Media liability insurance is a type professional
liability insurance for media and advertising professionals.
- Directors and Officers (D&O)
Insurance is a type professional
liability insurance Protects company executives against claims related to their
managerial decisions that affect the company and its stakeholders.
- Architects and Engineers (A&E)
Professional Liability Insurance is a type
professional liability insurance Covers design professionals against claims
arising from design errors, project management mistakes, and other professional
services.
How the Professional Liability Insurance
Works?
If someone alleges your business made a mistake, professional liability insurance will cover your legal fees, settlements, and judgments up to your policy’s limit. For instance, if you’re sued for an error that causes a client to lose money, your legal costs and any settlement will be covered.
There are two main types of professional
liability insurance:
Claims-made policies:
These cover claims made during the insurance
policy period, meaning the policy must be active when the incident occurred and
when the lawsuit is filed for the claim to be paid. Most professional liability
policies are claims-made.
Occurrence-based policies:
These cover incidents that happen during
the insurance policy period, even if the claim is reported after the policy
expires. This is beneficial for claims where the damage or injury becomes
apparent after the policy has ended.
What Does the Professional Liability Insurance Covers?
No matter how proficient your company is, mistakes can still occur. That's why adding professional liability insurance to your small business insurance policy is worth considering. Also known as errors and omissions insurance, it covers costs related to claims of professional mistakes, including legal fees, court judgments, settlements, and penalties from licensing boards.
Examples of mistakes that could lead to
client lawsuits include:
- Incorrect
or inaccurate advice: A financial consultant's advice leads to a client's
lost revenue.
- Misrepresentation:
A contractor misses a renovation deadline, causing a client to delay opening
their business and lose revenue.
- Negligence:
A lawyer fails to file a complaint within the statute of limitations, resulting
in financial losses for the client.
- Violation
of good faith and fair dealing: A realtor does not disclose critical
information to a buyer.
- Copyright
infringement: A website designer unintentionally in his work uses a
copyrighted image without permission.
What Does the Professional Liability Insurance Not Cover?
Common exclusions in a professional liability insurance policy include:
- Bodily injury or property damage:
Injuries and property damage, like a client slipping in your store, are covered
by the general liability portion of your business insurance policy.
- Client information or customer data: For
coverage against cyber attacks, data breaches, stolen information, and cyber
extortion, you need cyber liability insurance.
- Employment practices: Claims of employee
rights violations, such as wrongful termination or harassment, are covered by
an employment practices liability insurance policy.
- Illnesses and injuries: Work-related
injuries and illnesses suffered by employees are covered under workers'
compensation insurance.
- Intentional or dishonest acts: Illegal
acts and purposeful wrongdoing are not covered. Losses from intentional or
dishonest acts are excluded.
- Patents and trade secrets: Suits
involving patents and trade secrets obtained without permission are not
covered. General liability insurance might cover some costs if you steal
intellectual property.
Exclusions can vary by profession. For instance, a contractor's professional liability insurance policy may exclude injury coverage, while medical professional liability insurance covers injury claims.
Who Needs the Professional Liability
Insurance?
In some states, professional liability
insurance is mandatory if required by a licensing board. For instance, real
estate agents must provide proof of professional liability insurance to obtain
their licenses in over 10 states.
Businesses that could benefit from
professional liability insurance include:
- Architects
- Accountants
- Consultants
- Counselors
- Content marketers
- Engineers
- Insurance professionals
- Graphic designers
- Healthcare professionals
- Real estate agents
- Personal trainers
- Investment advisors
- Tax preparers
- Stockbrokers
- Technology professionals
How Much the Professional Liability Insurance
Cost?
According to Insureon, professional
liability insurance costs an average of $61 per month. Approximately 32% of
Insureon’s small business policyholders pay less than $50 per month or $600 per
year for this coverage.
The cost of professional liability
insurance depends on several factors:
- Your industry
- The size of your company and number of
employees
- Your revenue
- The common risks in your industry
- Your business location
- Your claims history
- The coverage limits you choose
Difference Between General Liability and
Professional Liability?
There are some key differences between
general liability insurance and professional liability insurance:
General liability insurance covers
accidental injuries and property damage caused to others. For instance, if a
customer slips on spilled liquid in your store and sprains their knee, this
genera liability insurance will cover their medical expenses and any
legal costs if you are sued.
Professional liability insurance covers
claims of errors or omissions made during the course of your business
operations. For example, if you miss a deadline and it results in financial
harm to your client, this prefiessional liability insurance will
cover your legal costs, as well as any judgments or settlements.
How can
one purchase Professional Liability Insurance?
Purchasing professional liability
insurance can be a straightforward process, especially with the availability of
online resources. To find the best coverage for your needs, start by
researching various providers offering professional liability insurance. Look
for companies that are known for their affordable liability insurance options,
as this can help you secure the coverage you need without breaking the bank.
Many insurers offer cheap professional liability insurance or cheap liability coverage, which can be beneficial if you're operating on a tight budget. To get the best deals, compare quotes from multiple providers. Websites that allow you to compare rates can be particularly useful for finding cheap professional liability insurance that still meets your coverage requirements.
Consider purchasing online professional
liability insurance for added convenience. Many reputable insurers provide
online quotes, allowing you to quickly assess your options and purchase
coverage from the comfort of your home or office. Additionally, if your
business has employees, you might want to look into employment practices
liability insurance, which covers claims related to employment issues such as
discrimination, wrongful termination, and harassment.
By comparing professional liability
insurance quotes in insurance companies, leveraging online tools, and exploring
additional coverage options, you can find affordable liability insurance that
suits your professional needs.
How to Find the Best Professional Liability
Insurance
Know How Much Coverage You Need
Determine the amount of coverage you need based on your industry, company
size, and level of risk. Consulting with an independent insurance agent can
help you select the appropriate coverage amount. Professional liability
insurance limits typically range from $250,000 to $2 million. Notably, 63% of
Insureon policyholders opt for a $1 million professional liability insurance
policy.
Compare Insurance Quotes
Compare business insurance quotes from multiple insurance companies to
find the policy that offers the best coverage at a reasonable cost.
Side-by-side shopping will ensure you get the most value for your money.
Look for Discounts
Many insurance companies provide discounts when you bundle professional
liability insurance with other types of small business insurance. Exploring
these options can lead to significant savings.
Negligent Acts, Errors and Omissions - Professional
Liability Insurance Useful Terms
When shopping for professional liability
insurance, you may encounter terms like negligent acts, errors, and omissions.
This type of insurance covers claims of negligence, which occur when your
company fails to exercise reasonable care in its services, resulting in harm to
a customer.
Examples of negligent acts, errors, and
omissions include missing a deadline, giving inaccurate advice, or omitting
crucial information. For instance, a real estate agent forgetting to mention an
important detail about a property would be considered an omission.
Professional
Liability Insurance Frequently Asked Questions (FAQs)
What are the Two Main Types of Professional
Liability Policies?
The two main types of professional
liability policies are claims-made and occurrence-based. Most professional
liability insurance policies are claims-made, meaning they cover claims
reported during the policy period. An occurrence-based policy, on the other
hand, covers claims for incidents that happen during the policy period, even if
the claim is reported after the policy expires.
What is Proof of Professional Liability
Insurance?
Proof of professional liability insurance
is provided by a certificate of liability insurance. This certificate includes
essential information such as coverage limits, the name of your insurance
company, policy number, and the policy's start and end dates. Your insurer
should provide this certificate at no cost. If you need a replacement or an
additional copy, you can usually obtain one through your insurer’s online
portal or by contacting the insurance company directly.
Is Professional Liability Insurance the Same
as Errors and Omissions?
Yes, professional liability insurance is
the same as errors and omissions insurance. This type of insurance protects
your business against claims of mistakes in professional services, such as
inaccuracies, delays, or undelivered services. It covers legal costs,
judgments, and settlements.
Is Professional Liability Insurance Tax
Deductible?
Generally, small business owners can
deduct the cost of business insurance, including professional liability
insurance, from their taxable income. Other types of potentially deductible
business insurance premiums include general liability insurance, commercial
property insurance, commercial auto insurance, and workers' compensation
insurance. However, premiums for disability insurance that covers lost income
or loan protection insurance are not deductible. It’s advisable to consult with
a tax professional for specific guidance.
How does the claims
process work for Professional Liability Insurance?
The claims process for professional
liability insurance starts with reporting the claim to your insurance company
as soon as you become aware of it, providing all relevant details and
documentation. The i professional liability insurance company then reviews the
claim to determine if it falls within the policy's coverage. An investigation
may follow, where information is gathered from all involved parties.
If the claim is covered, the professional
liability insurance company provides legal defense, potentially appointing an
attorney to represent you. The insurer will handle negotiations for settlements
or defend the claim in court, covering legal costs, judgments, or settlements
up to the professional liability insurance policy limits. Once the claim is
settled or adjudicated, it is resolved, and any necessary payouts are made.
How do insurance
companies determine the premium for Professional Liability Insurance?
The professional liability insurance companies
determine the premium for professional liability insurance by assessing various
factors. These include the nature and size of your business, the industry in
which you operate, and the level of risk associated with your professional
services. The professional liability insurance company also consider your
claims history, the amount of insurance coverage you need, and the specific
terms and conditions of the professional Liability Insurance policy.
Additionally, factors such as the number
of employees, annual revenue, and the geographic location of your business can
influence the professional Liability Insurance premium. Insurers use this
information to evaluate the likelihood of a claim being made and the potential
cost of such claims, setting the premium accordingly to balance risk and cost.
Can Professional
Liability Insurance be customized?
Yes, professional liability insurance can
be customized to meet the specific needs of your business. Insurers offer
various options and endorsements that allow you to tailor the insurance
coverage to your industry and the unique risks you face. Customization can
include adjusting professional liability insurance coverage limits, adding
endorsements for specific activities or services, and choosing between
claims-made and occurrence-based policies.
You can also select additional coverages, such
as cyber liability or employment practices liability, to further protect your
business. By working with an insurance agent or professional liability
insurance company, you can identify the precise coverage options that best suit
your operational needs and risk profile, ensuring comprehensive protection.