You may like to believe that you’re immune to making mistakes. Unfortunately, mistakes are inevitable—no matter how good you are at what you do. Most of the time, mistakes are simply an opportunity to learn and grow. But if potential mistakes can lead to serious financial damages, it might be worth considering professional liability insurance.
What is professional liability insurance?
Professional liability insurance provides coverage for any damages due to claims of negligence or misconduct in the course of a professional conducting their duties and responsibilities. In other words: If you or your employees make a mistake—or are perceived to—and your client suffers a loss as a result and sues you for it, your professional liability insurance policy helps shield you from those costs. This type of insurance is also called errors and omissions, or E&O, insurance. It’s common with professionals such as lawyers and doctors.
What does professional liability insurance cover?
Professional liability insurance covers the costs of damages, legal defense, loss of earnings, and defense costs from:
- Negligence
- Libel/public slander
- Inaccurate advice
- Copyright infringement
- Misrepresentation
Professional liability insurance does not cover:
- Lawsuits filed by employees. Including sexual harassment, workplace harassment, and wrongful termination, which require employee practices liability insurance (EPLI).
- Bodily injury to a client. If a client or customer is injured on your property, your general liability insurance should cover the costs.
- Property damage. Property damage is covered by property liability, general liability, or commercial property insurance.
- Medical bills. Apart from medical malpractice, which can be covered by certain types of professional liability insurance.
How does professional liability insurance work?
Professional liability insurance is typically a claims-made insurance policy. That means the policy covers claims made during the coverage period—and may include events that occurred in the past. Claims-made policies may include:
Retroactive date
This is the date your professional liability insurance coverage begins. If you're getting professional liability insurance for the first time, this date is typically the day your coverage starts. If you’ve maintained continuous coverage with a different insurance provider up to the present, your new coverage may be extended back to cover claims related to past events that surface in the future.
Extended reporting period
Also referred to as tail coverage, the extended reporting period is a date in the future after the end of your policy, during which claims will still be covered. This means that if your policy expires on January 1 but you have extended reporting for six months, claims made on March 15 would still be covered.
Who needs professional liability insurance?
Any company that provides professional services could need professional liability insurance at some point—because people naturally make mistakes. But certain types of businesses are especially vulnerable to the types of events professional liability insurance covers, including (but not limited to):
- Lawyers
- Doctors
- Real estate agents
- Architects
- Interior designers
- Consultants
Generally, if your business provides a service to clients where any mistakes you make could cause a loss for those clients, it’s a good idea to have professional liability insurance.
“Take a look at the litigation trends in the United States. If you offer a professional service, there are risks that come with that,” says Lynne McChristian, senior instructor of finance at the University of Illinois Urbana–Champaign and director of the Office of Risk Management and Insurance Research.
“Accountants, doctors, and businesses that offer advice need to have this type of insurance to protect themselves and make sure if anything happens, restitution doesn’t come out of their own pockets.”
While professional liability insurance typically isn’t required, it’s highly recommended for high-risk businesses. For example, Oregon and Idaho are the only two states that require that lawyers have professional liability insurance. In other situations, clients may require that contractors carry professional liability coverage before starting a contract.
How to get professional liability insurance
If you already have other types of business insurance and need professional liability coverage, try your current insurance company first and see if they can cover you. If not, shop around with a few different insurance companies and see who gives you the best rate for a policy that meets your needs. You also can consider checking with industry peers and asking for recommendations.
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Professional liability insurance FAQ
What is the difference between personal and professional liability insurance?
Personal liability insurance covers any liability for incidents that occur in your home, while professional liability insurance covers damages as a result of mistakes made at work that affect your clients in a negative way.
What does a professional liability policy cover?
Professional liability insurance covers:
- Negligence
- Libel/public slander
- Inaccurate advice
- Misrepresentation
Do you need both general and professional liability insurance?
Whether or not you need both general and professional liability insurance depends on the type of business you run. Most businesses need general liability insurance because it protects them from liability from common business risks such as a customer being injured on your business’s property or one of your employees causing damage to a customer’s property. But if your company provides direct services to customers that could lead to them experiencing a financial loss if you make a mistake, then consider professional liability insurance as well.
What is the difference between general and professional liability insurance?
General liability coverage protects you in the case of common risks, like a customer getting hurt on your property. Professional liability insurance protects you if you make a mistake that leads to your client experiencing a loss.
What is the difference between professional liability and malpractice insurance?
Malpractice insurance is a type of professional liability insurance. It is specifically for those in the medical field.