If you provide services to clients for a fee, then you should look into getting a professional liability insurance policy.
This insurance policy is designed to protect your business from potential claims of errors or professional negligence, even when such claims lack substantiation.
Possessing professional liability insurance is crucial when offering services to clients in exchange for a fee. As it could protect you from client claims of negligence and other allegations.
What Is Professional Liability Insurance?
PLI is an important form of insurance designed for professionals such as accountants and lawyers, protecting against client claims of negligence and other allegations.
This specialized insurance is particularly vital for experts in specific fields, as general policies often do not cover negligence, malpractice, mistakes, or misrepresentation claims.
Businesses find significant value in PLI, a specific type of coverage that shields against lawsuits initiated by clients who allege mistakes or claim to have received faulty advice. This type of insurance is also known as errors and omissions insurance.
How Does Professional Liability Insurance Work
Professional Liability Insurance (PLI), also known as errors and omissions insurance or malpractice insurance in specific fields, functions by providing coverage for professionals against claims of negligence, errors, omissions, or other professional misconduct.
Professionals, such as doctors, lawyers, and consultants, purchase these policies, outlining the covered risks and claims, including legal defense costs, settlements, or judgments arising from covered claims.
When a client alleges professional mistakes, negligence, or misconduct, a claim is initiated, prompting the professional to report it to the insurance company. The insurer conducts an investigation and provides legal representation if necessary, covering associated legal costs.
The policy has coverage limits, representing the maximum amount the insurance company will pay for a covered claim, and may include deductibles that the insured professional must pay before coverage applies.
In the event of a valid claim or negotiated settlement, the insurance policy covers costs such as compensating the affected party and legal damages.
Professional liability policies may also offer options like tail coverage or extended reporting periods, providing continued protection for claims related to services performed during the policy period but reported after its expiration.
Types Of Professional Liability Insurance
There are two primary types of professional liability insurance. They include claims-made policy and occurrence policy. In a claims-made policy, coverage is effective only if the policy was active when the event and subsequent lawsuit occurred.
On the other hand, an occurrence policy covers any eligible claim arising from an incident that took place while the policy was active, regardless of when the claim is filed.
What Does Professional Liability Insurance Cover?
This insurance type provides coverage for various liabilities, including:
- Mistakes, errors, and oversights in the services provided.
- Failure to deliver services as promised.
- Missing deadlines related to professional duties.
- Negligence or failure to meet industry standards.
- Breach of contract in the course of professional services.
These examples highlight the scope of protection that PLI offers against potential risks and claims in professional practice.
What Does Professional Liability Insurance Not Cover?
PLI typically does not cover liabilities such as:
- Employee injuries.
- Employee discrimination lawsuits.
- Vehicle business use.
- Bodily injury.
- Business property damage.
- Customer injuries or damages.
However, businesses need to consider a comprehensive insurance strategy that includes various types of coverage to address different aspects of their operations.
How Much Does Professional Liability Insurance Cost?
The cost of this insurance policy varies based on factors such as your geographical area, industry, and claims history.
Additional considerations affecting the policy’s price include the size of your workforce and the duration of your business operations.
Like other insurance types, coverage limits and deductibles play a role in determining the overall cost.
Additionally, as a leading insurance provider, the median monthly expense for this insurance type stands at $59. Most policies fall within the range of $500 to $1,000 annually.
Who Needs Professional Liability Insurance
If you are employed by a service-providing company, the company’s professional liability insurance (PLI) should typically cover your services.
However, if you operate a small business, offer professional services independently, or contract your services to other businesses, obtaining this insurance is advisable.
Some examples of professionals who should consider having professional liability insurance include:
- Insurance agents.
- Real estate agents.
- Financial advisors.
This coverage becomes particularly crucial for individuals and businesses. It provides services, as it helps protect against potential claims of errors, omissions, or professional negligence in their respective fields.
How To Find The Best Professional Liability Insurance
Typically, prominent insurance providers extend professional liability or errors and omissions insurance as part of their offerings.
If your business is already covered by insurance, inquire with your current insurer about the possibility of incorporating a professional liability policy into your existing coverage.
Some insurers even provide multi-policy discounts, potentially offering a cost-effective solution for comprehensive protection.
Here are the steps you can follow to find the best:
Determine The Appropriate Amount Of Coverage
Seeking guidance from an independent insurance agent is advisable to assist in selecting a suitable coverage amount.
Additionally, this insurance type limits typically vary between $250,000 and $2 million.
A majority of insurance policyholders (63%) opt for a $1 million policy, reflecting a common choice in coverage among businesses.
Engaging in side-by-side shopping, where you compare business insurance quotes from multiple insurance companies, is a prudent approach.
Typically, this process allows you to assess and determine which policy effectively covers your needs while maintaining a reasonable cost.
By evaluating quotes from different insurers, you gain insights into the diverse offerings available and can make an informed decision that aligns with your coverage requirements.
Explore Potential Discounts
Certain insurance providers extend discounts for bundling professional liability insurance with other types of small business insurance.
By taking advantage of these bundled offerings, you may not only enhance your coverage but also benefit from cost-effective solutions tailored to your specific business needs.
Its importance lies in the recognition that errors can occur despite the careful and experienced nature of a professional’s work.
Professional liability insurance is a vital form of coverage designed for small business professionals, including doctors, lawyers, accountants, and architects.
This insurance safeguards these professionals against the financial repercussions of mistakes made in the course of their professional duties.