Professional liability insurance

When you’re a professional, one small slip-up can end up a big, expensive problem. Because if a client thinks you made a mistake and it cost them money, they can sue you for negligence. In fact, clients can sue you for negligence even when you’ve done nothing wrong.

Even if a claim is groundless, professional liability insurance (also known as errors and omissions) can cover your legal defense costs, and damages, too.

With that sort of financial protection for your business, a professional liability policy is one it might be a mistake not to have.

• Who needs professional liability insurance?

  Anyone who charges clients for advice, or a service, needs professional liability insurance. Here’s why:

  • Because your clients may expect you to have a professional liability policy (and a certificate to prove it) before they’ll work with you.
  • Because clients can sue you, whether you made a mistake, or not.
  • Because even if a case has no grounds you still have to defend yourself. Not just because a negligence claim can damage your reputation. But because you’ll end up with a default judgment if you don’t. And that means you’ll have to pay whatever your client says you owe.
  • Because unless you’re a legal expert you’ll need an attorney, and lawsuits are expensive. Really expensive. Legal fees, court costs and compensation can run to 5, sometimes even 6 figures. And without professional liability insurance, you’ll have to foot the bill yourself.
  • Because defending a claim doesn’t just create stress and cost you money, it takes up your time.

  Having a professional liability policy means you can focus on what you do best. Knowing your business, your bank balance, and your reputation are protected.

• What does professional liability insurance cover?

  Professional liability insurance can hire you an attorney and cover legal fees -- plus compensation -- if a client claims you, or anyone you employ:

  • Made a mistake
  • Gave bad advice
  • Omitted something
  • Failed to meet a deadline
  • Bad-mouthed a person or business.

  What’s more, even if a claim has no grounds, a professional liability policy can cover:

  • Claims over work you did in the past.
  • Work you did anywhere in the world (as long as the claim’s filed in the U.S., a U.S. Territory, or Canada).

• How much does professional liability insurance cost?

  The cost of professional liability insurance can vary, depending on:

  • What industry you’re in
  • The size of your company
  • Your location
  • The amount your business earns a year
  • How much coverage you choose
  • Your deductible (the amount you choose to pay towards the cost of a claim).

  The higher your deductible, the lower your policy will be priced. Just make sure that if it a claim were made, you could actually afford to pay that amount towards the cost of the case.

  Choose your coverage limit carefully too. Because the higher your coverage limit, the more your professional liability policy will cost. Think worst-case scenario, then choose a figure you can realistically afford.

  And remember, payment options are available. So you can spread the cost of your policy to suit your budget.

  Here’s an example of professional liability insurance prices. See how they vary, depending on your location and profession?

  	IT Consultant	Business Consultant
  State	CA	TX
  Annual income	$150,000	$350,000
  Coverage limit	$500,000	$1,000,000
  Amount you pay towards the cost of a claim	$5,000	$5,000
  Monthly cost of policy	$36.75	$65
  Annual cost of policy	$441	$779

• Professional liability insurance and errors and omissions (E&O): What’s the difference?

  There isn’t one. Professional liability, PL, errors and omissions, and E&O, are names used by insurance companies to describe policies that do the same thing.

  The reason there are so many different names for the same policy is because different industries call it different things.

  In real estate, tech and accounting industries, for example, they call it errors and omissions (or E&O, for short). While architects, consultants and engineers call it professional liability (or PL).

  Visit our blog to read more about the difference between PL and E&O policies.