Do I Need Professional Liability Insurance?
When you run a business that provides professional services or advice, you’re susceptible to lawsuits from dissatisfied clients. These can cost you tens of thousands of dollars in legal fees and damages.
Professional liability insurance, also called errors and omissions (E&O) or malpractice coverage, is a policy designed to protect you against these kinds of claims. It’s essential for small businesses like accountants, doctors, lawyers and architects.
Professional Liability Insurance Coverage
If you’re a hair salon owner, veterinarian or other type of dedicated professional, it’s important to have professional liability insurance. If you botched a client’s dye job, misdiagnosed Fido’s upset tummy or provided inaccurate tax advice, your clients could sue you and you could face legal costs that could ruin your business.
If your client files a lawsuit, your professional liability insurance policy will help cover the cost of your legal defense and other expenses. It also protects you from public shaming and loss of your professional reputation, which could harm your career.
The difference between general and professional liability is that while general insurance covers physical losses, such as injuries or property damage, professional liability insurance covers claims of negligence, bad advice or copyright infringement. It’s especially important to have this coverage if you provide any type of service or trade that can cause financial harm to others, such as accountants, doctors, lawyers and real estate agents.
A professional liability policy is usually a separate insurance product from your business insurance. It’s available from many insurers, and it’s often paired with general liability for a more comprehensive policy.
It’s important to understand that the terms of your policy will depend on the provider, so be sure to compare policies before you purchase them. Most professional liability policies are «claims-made,» meaning that they must be in effect when the event occurred and when the suit is filed for you to receive payment from the insurer.
Another thing to keep in mind is that some professional liability policies will include additional coverage for defending you in a lawsuit. While this can add to your premium, it is usually less expensive than indemnity only.
It’s always important to talk to a lawyer before you buy any type of insurance, including professional liability. You’ll want to make sure that the policy you choose covers the type of incident you’re concerned about. It’s also important to understand that most professional liability policies are worded differently from one provider to the next, so you’ll need to read your policy carefully before you purchase it.
What is Professional Liability Insurance?
Professional liability insurance, also known as errors and omissions (E&O) insurance, is designed to cover businesses that provide advice or services for a fee. These include accountants, real estate agents, attorneys and other professionals.
These types of businesses often need E&O coverage because their clients’ money or property could be at risk. For example, if an attorney made a mistake while representing a client, that client might sue the attorney for negligence and damages.
However, professional liability insurance policies are different from general liability coverage in that they are more focused on economic loss rather than bodily injury or property damage claims. This means that an accountant who misses filing a client’s taxes would not be covered by a PL policy, even though it was caused by an error on the part of the accountant.
Business owners may have to pay a deductible in order to obtain professional liability insurance coverage, but this is usually much less expensive than it would be for other small business insurance products such as general liability and workers’ compensation. This is because a PL policy includes a number of other features to reduce the cost of the policy, including a claims-made coverage trigger and what’s called «shrinking limits» in which defense costs are paid out in addition to available policy limits.
In order to get the most out of a policy, business owners should take the time to do side-by-side shopping with several different insurance companies, comparing their quotes. This will help them determine which coverage is best for their business at a reasonable price.
A GEICO agent can assist business owners in determining whether they need a professional liability insurance policy. A representative can provide a quote and arrange a policy with the insurer that will be most suitable for their specific needs.
Some states require licensed professionals to carry professional liability insurance in order to meet licensing requirements. For instance, some real estate agents must show proof of professional liability insurance before they can obtain a license in more than 10 states.
Employees who discontinue or cancel their professional liability insurance should ensure that the Professional Liability Insurance Reimbursement Claim Form and all required supporting documentation are submitted to the SHRO as soon as possible in order to receive reimbursement for premiums that have been paid. This process must be completed within six months after the date that the policy ends, in order to avoid a taxable income on the withdrawn amount.
General Liability Insurance Coverage
General liability insurance protects your business from claims for third-party bodily injury and property damage. It also covers your defense costs in the event that someone files a lawsuit against you for things like advertising injury, copyright infringement or reputational harm.
You can buy a business liability insurance policy as part of a business owners policy (BOP) or on its own. Premiums for these policies vary by type of business and risk level.
The minimum amount of coverage you should have depends on your industry and customer demand. For example, a restaurant owner with high-end customers may require higher limits than a small hair salon owner with low-income clients.
A general liability insurance policy usually comes with a set of standard coverages, but you can often choose additional or unique coverages that are tailored to your needs. For example, if you provide a service that involves high-risk operations, your insurance agent might suggest an endorsement called a subcontractor exclusion.
This type of exclusion is typically used in construction or high-hazard industries and excludes any business that is not involved with the actual construction of a structure. It can make sense for a construction contractor, but you should read the wording carefully to ensure that it does not exclude your business from coverage.
Professional liability insurance, on the other hand, protects you if you are sued by a client for a professional mistake or error in your services. Unless you have professional liability coverage, you could find yourself in a hefty lawsuit if you botch a dye job for a client, misdiagnose a pet’s upset tummy or fail to provide advice that meets a customer’s expectations.
Your insurance agent can help you determine how much coverage you need for your specific situation, and can also explain the different types of liability policies. Ultimately, the best approach is to talk with your agent about the risks you face and how you can customize your business liability insurance policy to mitigate these risks.
A business liability insurance policy is a must-have for any small business owner. It can save you a lot of money if you ever get into an accident, and it can also provide peace of mind. To get the right business liability insurance for your company, start by getting quotes from a few providers.
Why Do I Need Professional Liability Insurance?
If you provide services or advice that could lead to financial losses for your clients, you need professional liability insurance. It is often paired with general liability insurance for additional protection.
You need to carefully assess the amount of professional liability coverage you need and your deductible before making any decision on this type of insurance. The amount of coverage you need depends on how much your business is worth and how many clients you have.
For example, if you work as a financial planner and have clients with a lot of money, you may need more insurance than if you are a freelancer who only works with clients with a small amount of income. You also need to consider how much money you have in your bank account or rainy day fund to cover legal fees if the worst happens and you are sued.
It is important to make sure that you purchase a policy from a reputable insurer. Check the insurer’s financial rating and find out how long they have been in business.
The company should also be easy to work with if you have any questions or concerns about your policy. It should offer a certificate of insurance (COI) and have an easy claims filing process that is transparent and quick.
You should also shop around for a policy with an affordable annual premium. It is best to get quotes from multiple companies and compare them. The premiums for professional liability insurance vary by company and product, so you want to choose the right one for your needs.
There are two types of policies for professional liability insurance: occurrence and claims-made. Occurrence policies are more expensive in the beginning, but they usually last longer than claims-made policies.
Claims-made policies cost less in the beginning, but they are harder to manage and tend to have lower limits. The coverage is also less flexible than occurrence policies, so you will need to be more diligent about renewing your policy and checking to see if there are new options that could protect you.