What Is Professional Liability Insurance? – Forbes Advisor

Mishaps happen. But mistakes made during the course of running your business could be costly and result in a lawsuit. For example, if you fail to deliver by a deadline or a client says your professional advice resulted in financial harm you may face legal challenges.

Professional liability insurance is a form of business liability insurance that covers your small business against claims of mistakes in professional services, even if the claim has no merit. Also known as “errors and omissions insurance,” professional liability insurance can be a key component of your business insurance plan.

What Does Professional Liability Insurance Cover?

As good as your company may be, 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 the costs associated with claims of professional mistakes, including legal fees, court judgments and settlements, and other types of fees, such as licensing board penalties.

Here are some mistakes that could prompt a client to sue your company:

• Incorrect or inaccurate advice
• Misrepresentation
• Negligence
• Violation of good faith and fair dealing

Examples of professional liability insurance claims

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

• A financial consultant provides advice that results in lost revenue.
• A tax preparer makes a mistake that results in a penalty.
• A contractor fails to complete a renovation on time.
• A public relation consultant’s strategy results in a negative reaction.
• A real estate agent neglects to disclose key information about a house.

What Does Professional Liability Insurance Not Cover?

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

• Bodily injury or property damage. Accidental injuries and property damage caused to others (such as a client who slips in your store) is covered by the general liability portion of your business insurance policy.
• Client information or customer data. If you want coverage for cyber attacks and problems such as data breaches, stolen information and cyber extortion, you’ll need to buy cyber liability insurance.
• Employment practices. Lawsuits arising out of claims of violation of your employees rights, such as wrongful termination or harassment are covered by employment practices liability insurance policy.
• Illnesses and injuries. Injuries and illnesses suffered by your employees while performing work-related tasks are covered under workers compensation insurance.
• Intentional or dishonest acts. This includes illegal acts and purposeful 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 liability insurance if you are sued. A general liability policy might cover some costs if you steal intellectual property.

Who Needs Professional Liability Insurance?

In some states, you may be required to buy professional liability insurance if your licensing board requires it. For example, real estate agents are required to show proof of professional liability insurance before they get 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
• Consultants
• Content marketers
• Counselors
• Engineers
• Graphic designers
• Health care professionals
• Insurance professionals
• Personal trainers
• Investment advisors
• Real estate agents
• Stockbrokers
• Tax preparers
• Technology professionals

How Much Does Professional Liability Insurance Cost?

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

Your professional liability insurance costs will depend on a handful of factors:

• Your industry
• The size of your company and number of employees
• Your revenue
• The common risks that your industry faces
• Your business location
• Your claims history
• The coverage limits that you choose

How to Find the Best Professional Liability Insurance

Know how much coverage you need

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

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

Compare insurance quotes

Doing side-by-side shopping by comparing business insurance quotes from a few different insurance companies will help you determine what 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 small business insurance.