Do I Need Professional Liability Insurance for My Business

If you're a freelancer or small business owner, you're likely no stranger to taking on risks to get your business off the ground. According to a recent survey, 71% of small businesses face a lawsuit at some point.

Professional liability insurance, also known as errors and omissions insurance, can provide financial protection in case you're sued for negligence or mistakes made while working with a client. This type of insurance can be a lifesaver, especially if you're in a high-risk profession like healthcare or finance.

The cost of a lawsuit can be devastating, with some cases resulting in damages of over $1 million. In fact, one study found that the average cost of a lawsuit is around $200,000.

As a business owner, it's essential to weigh the potential risks and costs of not having professional liability insurance against the benefits of having it.

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If you provide services to customers or offer advice to clients, you should consider getting a professional liability insurance policy. This type of insurance can cover claims against you and your company for professional errors or mistakes.

Professionals who face risks that professional liability insurance protects against include accountants, architects, consultants, engineers, financial or investment advisors, insurance and real estate agents and brokers, software developers, and graphic designers. Medical professionals, such as doctors and nurses, may also be required by law to carry medical malpractice insurance.

Some professionals may be required by law or industry regulations to carry professional liability insurance, such as doctors, attorneys, and accountants. For others, the need for PLI depends on factors like individual contract requirements and risk exposure.

Here's a list of some professionals who may need professional liability insurance:

Not every professional needs professional liability insurance, but certain ones are more likely to require it. For example, doctors, attorneys, and accountants often find it essential to carry personal liability insurance.

Some professionals may be required by law or industry regulations to have professional liability insurance. Medical professionals, for instance, may be required to carry medical malpractice insurance.

Not all professionals will find it necessary to carry personal liability insurance. For others, the need for PLI depends on factors such as industry regulations, individual contract requirements, and how great their risk exposure is.

Certain professionals will find it essential to carry personal liability insurance, such as doctors, attorneys, and accountants. This is because they often provide expert services that can result in claims of negligence or mistakes.

Here are some examples of professionals who may need professional liability insurance:

Medical professionals may be required by law to carry medical malpractice insurance. This kind of professional liability insurance specifically protects physicians, dentists, nurses, psychologists and other medical professionals against claims that they made a mistake that led to a patient’s injury or death.

Berk is a type of insurance policy that provides protection for professionals against lawsuits and financial losses.

The cost of a Berk policy can vary depending on factors such as the type of profession, location, and coverage limits.

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In many states, having a Berk policy is mandatory for certain professionals, such as doctors and lawyers.

As a professional, you are more likely to be sued if you have a history of claims or complaints against you.

A Berk policy can help protect your assets and livelihood in the event of a lawsuit.

Professional liability policies come in two main types: claims-made and occurrence. The claims-made policy requires the policy to be active when the event and lawsuit happened, while occurrence policies cover claims resulting from incidents while the policy was active.

Most professional liability policies operate on a claims-made basis, meaning coverage is triggered when a claim is made against the insured during the policy period. This can provide peace of mind for professionals, knowing they're protected in case of a lawsuit.

Professional liability policies often feature shrinking limits, which means the insurer's payment of defense costs reduces the available policy limits. This can be a concern for insureds who may need to purchase higher limits to ensure adequate coverage for both defense costs and potential settlements or judgments.

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Policy wording can be confusing, even for seasoned professionals. Professional liability policies tend to be worded differently between providers, which can make it difficult to compare coverage.

Some policies may express similar coverage in ways that are easy to compare, while others may differ significantly. For example, two policies might have clauses that seem similar, but actually have different meanings.

A phrase like "negligent act, error or omission" might indemnify the policyholder against loss or circumstances incurred only as a result of a professional error or omission. However, a phrase like "negligent act, negligent error, or negligent omission" is interpreted differently, requiring the error or omission to be determined as negligent.

You should be aware of the specific wording in a policy before purchasing it. If you're not sure, consider consulting a lawyer who is familiar with professional liability insurance. They can help you understand the policy and ensure you're covered for a given claim.

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Here's a comparison of two similar-sounding clauses:

Don't assume that a policy covers all types of incidents. For example, a policy might not cover employee injuries, employee discrimination lawsuits, vehicle business use, bodily injury, business property damage, or customer injuries or damages. Be sure to review the policy carefully to understand what is and isn't covered.

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Professional liability policies operate on a claims-made basis, meaning coverage is triggered when a claim is made against the insured during the policy period, regardless of when the alleged error or omission occurred.

Most professional liability policies have shrinking limits, where the insurer's payment of defense costs reduces the available policy limits. This contrasts with CGL insurance, where defense costs do not typically reduce policy limits.

Professional liability policies often feature a single limit that includes both indemnity and defense costs. This means insureds may need to purchase higher professional liability limits to ensure adequate coverage for both defense costs and potential settlements or judgments.

Some common exclusions in professional liability policies include those for intentional or dishonest acts, bodily injury, and property damage.

Here are some common characteristics of professional liability policies:

Claims-made policies provide coverage for claims made against the insured during the policy period, regardless of when the alleged error or omission occurred.

This means coverage is triggered when the claim is reported to the insurer rather than when the incident causing the claim took place.

The policy in force at the time the claim is made responds to the claim, regardless of when the professional services were rendered. This is in contrast to occurrence-based policies, which provide coverage for incidents that occur during the policy period.

The critical component of a claims-made policy is the retroactive date, also known as the retroactive or prior acts date. This date specifies the point from which coverage applies for claims arising from past acts, errors, or omissions.

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Claims arising from acts or services performed before the retroactive date are typically excluded from coverage, regardless of when the claim is made. Insureds should carefully consider the retroactive date when purchasing coverage to ensure adequate protection for past activities.

Maintaining continuous coverage is essential under a claims-made policy to ensure uninterrupted protection against potential liabilities. Gaps in coverage can leave insureds exposed to claims for which they have no insurance protection.

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Professional liability insurance provides broad coverage for errors and omissions in professional services, but there are some common exclusions that may limit coverage.

Most professional liability policies exclude coverage for bodily injury and property damage claims, as these types of losses are typically covered under commercial general liability policies.

Some professional liability policies may include a prior knowledge exclusion, which precludes coverage for claims arising from incidents or circumstances known to the insured before the policy's inception.

Professional liability policies typically exclude coverage for claims arising from intentional or dishonest acts committed by the insured, such as fraudulent misrepresentation or misstatement made in the course of providing professional services.

Claims arising from criminal acts or illegal activities committed by the insured are also typically excluded from coverage.

Here are some common exclusions in professional liability policies:

Professional liability insurance costs can vary depending on your industry, location, and business details. On average, small business owners pay around $45 per month or $500 per year.

The cost of professional liability insurance can also be influenced by the number of claims you've had in the past, with some policies costing between $600 and $1,200 per year. According to Insureon, the median cost for its clients' professional liability insurance is $61 per month.

Higher deductibles can mean lower premiums, but be sure to carefully assess your needs and budget. You can also save up to 20% by choosing a provider like Berk.

Here's a rough estimate of how coverage limits can impact your premiums:

Keep in mind that these are just estimates, and your actual costs may vary based on your specific business details.

When you have professional liability insurance, you might think it covers everything. But there are some important things it doesn't protect you against.

Professional liability insurance doesn't cover bodily injury or property damage that customers or clients suffer while you're doing business. This could be something as simple as a customer tripping in your office or their files getting destroyed in a fire.

Lawsuits filed by employees with allegations like wrongful termination or workplace harassment aren't covered by professional liability insurance either. You'll need a separate type of insurance for that.

If you or one of your employees commits a crime or intentionally misleads a client, the resulting professional liability claim isn't covered. This is a pretty straightforward rule: if you're breaking the law, you're not protected.

Here are some specific examples of what's not covered by professional liability insurance:

The cost of professional liability insurance can vary significantly depending on several factors.

The median cost for professional liability insurance is around $61 per month, or $735 annually, according to Insureon. This cost can range from $600 to $1,200 per year, with most policies falling within this bracket.

Policy liability limits can also vary greatly, typically ranging from $250,000 to $2 million or more. Many policies include limits of $1 million for a single claim and a $1 million aggregate limit that lasts the lifetime of the policy.

Some industries are riskier than others, which can impact the cost of insurance. For example, if you're in a high-risk industry, you can expect to pay more for your policy.

Increasing your deductible can also lower your premiums, just like with auto insurance. However, be sure to carefully assess your needs and budget before making any changes.

Here are some estimated costs for professional liability insurance: