Personal Finance

What Is Professional Liability Insurance?

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Key takeaways:

  • Professional liability insurance protects a business if a client files a lawsuit over an alleged or actual mistake or bad piece of advice.

  • Errors and omissions insurance, medical malpractice insurance and legal malpractice insurance are types of professional liability insurance.

  • In general, anyone who provides a service to clients should consider professional liability insurance. Many professionals are required to carry it.

Professional liability insurance is a type of business insurance that protects you from lawsuits filed by dissatisfied clients.

If you have a job that provides professional services — such as an architect, lawyer, doctor or accountant — clients expect you to perform that job well. If you make a mistake or a client thinks you made one, you could face a lawsuit. Professional liability insurance can help cover those potential costs.

What does professional liability insurance cover?

Professional liability insurance can protect businesses against the following kinds of claims, including covering legal and settlement costs:

  • Errors or oversights.

  • Professional negligence or failure to meet a standard of care.

  • Breach of contract.

  • Failure to deliver a promised service on time.

Unlike some other types of liability insurance, professional liability policies generally protect against claims of financial losses, not bodily injury or property damage. Medical malpractice insurance is an exception to that rule, though, as are policies for architects and engineers.

What isn’t covered by professional liability insurance?

Professional liability doesn’t protect a business against:

  • Bodily injury or property damage that customers or clients suffer while you’re doing business — for instance, if they trip and fall in your office or if their personal files are destroyed in a fire. Those are general liability claims.

In general, professional liability policies have to be in place at the time a claim is filed in order to pay out. You may be able to purchase additional coverage for a set period of time before the policy start date. But if you let your coverage lapse, you’ll probably lose protection.

Who needs professional liability insurance?

Anyone who provides professional services or advice to clients for a fee faces the risks that professional liability insurance protects against. This list can include:

  • Accountants.

  • Architects.

  • Consultants, including management and IT consultants.

  • Engineers.

  • Financial or investment advisors.

  • Insurance and real estate agents and brokers.

  • Software developers and graphic designers.

Medical professionals may be required by law to carry medical malpractice insurance. This kind of professional liability insurance specifically protects physicians, dentists, psychologists and other medical professionals against claims that they made a mistake that led to a patient’s injury or death.

Professional liability insurance may be required in other fields as well. For example, state licensing bodies may require lawyers to carry legal malpractice insurance or to tell clients whether or not they have it.

How to find the best professional liability insurance

Many commercial insurance companies offer professional liability insurance. Getting quotes from multiple insurers can help you find the lowest rates and best coverage.

The cost of professional liability insurance depends on:

  • How common lawsuits are in your industry.

  • The location where you work and how common claims are there.

  • How much coverage you need.

  • How many employees you have.

  • How long you’ve been in business.

  • What kind of claims, if any, you’ve filed in the past.

Insureon says its customers pay a median of $59 per month for professional liability insurance. In 2020, customers paid an average of $46 per month for professional liability insurance through Progressive’s Advantage Business Program.

Professional liability insurance isn’t sold as part of a business owners policy and must be purchased separately. Talking to an insurance broker or agent can help you assess your risks and understand what kinds of business insurance you need.

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