What is Professional Liability Insurance? – Forbes Advisor

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Misadventures happen. But mistakes made while running your business could be costly and result in legal action. For example, if you don’t meet delivery deadlines or if a customer claims your professional advice resulted in financial harm, you could face legal action.

Professional liability insurance is a form of professional liability insurance that covers your small business against claims for fault in professional services, even if the claim is unfounded. Also known as errors and omissions insurance, professional liability insurance can be a key part of your business insurance plan.

What does professional liability insurance cover?

No matter how good your business, mistakes are bound to happen. That’s why it’s worth considering adding professional liability insurance to a small business insurance policy.

Professional liability insurance is also known as errors and omissions insurance. It covers costs associated with malpractice claims, including legal fees, court judgments and settlements, and other types of costs, such as licensing board penalties.

Here are some mistakes that could cause a customer to sue your business:

  • Incorrect or inaccurate advice
  • False declarations
  • Neglect
  • Violation of good faith and fair use

Examples of Professional Liability Insurance Claims

Here are some examples of claims generally covered by professional liability insurance:

  • A financial consultant provides advice that results in loss of income.
  • A tax preparer makes an error that results in a penalty.
  • A contractor does not complete a renovation on time.
  • The strategy of a public relations consultant leads to a negative reaction.
  • A real estate agent fails to disclose key information about a home.

What does professional indemnity insurance not cover?

Here are some common exclusions found in a professional liability insurance policy:

  • Bodily injury or property damage. Accidental injury and property damage to others (such as a customer slipping into your store) are covered under the general liability portion of your commercial insurance policy.
  • Customer Information or Customer Data. If you want coverage against cyber attacks and issues such as data breaches, information theft, and cyber extortion, you will need to purchase cyber liability insurance.
  • Employment practices. Legal actions arising from claims of violation of your employees’ rights, such as wrongful termination or harassment, are covered by the Employment Practices Liability Policy.
  • Diseases and injuries. Injuries and illnesses suffered by your employees while performing work-related tasks are covered by workers’ compensation insurance.
  • Intentional or dishonest acts. This includes illegal acts and intentional wrongdoing. Losses caused by international or dishonest acts are also not covered.
  • Patents and Trade Secrets that you obtain without the owner’s permission are not covered by professional indemnity insurance if you are sued. A general liability insurance policy may cover some costs if you steal the intellectual property.

Who needs Professional Liability Insurance?

In some states, you may need to purchase professional liability insurance if your licensing board requires it. For example, real estate agents are required to show proof of professional liability insurance before obtaining their real estate license in more than 10 states.

Here are some examples of the types of businesses that could benefit from professional liability insurance:

  • accountants
  • Architects
  • Advisors
  • Content Marketing Specialists
  • Advisors
  • Engineers
  • Graphic designers
  • Health professionals
  • Insurance professionals
  • personal trainers
  • Investment Advisors
  • Real estate agents
  • Brokers
  • tax preparers
  • Technology professionals

How much does professional liability insurance cost?

Professional liability insurance costs an average of $59 per month, according to Assuranceon. More than half (51%) of Insureon small business policyholders pay between $500 and $1,000 for professional liability insurance.

The cost of your professional liability insurance will depend on several factors:

  • Your industry
  • The size of your business and the number of employees
  • Your income
  • Common risks facing your industry
  • Location of your business
  • Your claims history
  • The coverage limits you choose

How to find the best professional indemnity insurance

Know what coverage you need

It’s important to determine how much you’ll need based on your industry, size of business, and level of risk. It’s a good idea to speak with an independent insurance agent who can help you choose the appropriate amount of coverage.

Professional liability insurance limits can range from $250,000 to $2 million. Most Insureon policyholders (61%) carry a $1 million professional liability insurance policy.

Compare insurance quotes

Shopping side by side by comparing commercial insurance quotes from a few different insurance companies will help you determine which policy covers your bases at a reasonable cost.

Look for discounts

Some insurance companies offer a discount for bundling professional liability insurance with other types of insurance for small businesses.

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