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How Much does Professional Liability Insurance Cost?

Lawsuits can happen anytime and almost anywhere. Every day, it seems like the news is covering a new lawsuit against a company or individual. In fact, the problem gets so bad that a federal district court imposed a $9.1 million fine on a Florida firm for filing too many frivolous lawsuits, as reported by the American Bar Association in 2018. In order to keep yourself and your business protected, that’s where professional liability insurance comes in. Below we’ll look more in-depth at what it is and how much it costs.     

What is Professional Liability Insurance? 

According to the Hartford, a major professional liability insurance provider, this type of insurance covers you in the event that you provided professional services and someone sued you because they felt you negatively impacted them financially. It’s also often called errors and omissions insurance, or E&O insurance. 

Additionally, professional liability insurance covers you when the plaintiff can prove that you were negligent in some way, such as if you did not provide some sort of service or made a mistake. A common example is if you’re an accountant and a clerical error led to a client losing thousands of dollars.

Below are several cases that can often fall under professional liability insurance:

  • Failure to render services
  • Significant financial loss
  • Omission or errors
  • Breach of contract

The problem with the nature of oversights is just that: they’re oversights. You can think you did everything correctly and by-the-book. But a major mistake you didn’t even know you made could land you in court. That’s why it’s important to consider professional liability insurance for your small business.

>>MORE: Professional Liability vs. Malpractice vs. E&O Insurance: How Are They Different?

What Professional Liability Insurance Coverage Should Small Businesses Look For? 

There are two main types of professional liability insurance policies to look into. The first type is called claims-made and the second is called occurrence.    

Claims-made policies simply mean that the policy has to be in effect at both the time of the incident in question and when the lawsuit is filed to be eligible for coverage.

An occurrence policy covers the incident that led to the lawsuit as long as it happened when the policy was effective. For instance, if you commit a clerical error while you have the policy, then retire and get sued after the policy has lapsed, you can still be covered. These make the most sense if you’re close to retirement, as the hypothetical situation shows, or if you may be thinking of a career change.

>>MORE: General Liability Insurance: Definition and Coverage

How Much Does Professional Liability Insurance Cost? 

Rates can vary based on the size and type of your business. For instance, some types of businesses carry the potential for greater risk and loses. As an example, if you are a software developer, someone could sue for hundreds of thousands of dollars if your program malfunctions and leads to lost digital sales.  

For a general outline of what you can expect to pay, however, Progressive Commercial states that businesses paid an average of $50 per month for professional liability insurance through Progressive. With how risky running certain types of small businesses can be, that’s a small price to pay for peace of mind.

We also got quotes for professional liability insurance (or E&O insurance) through two leading digital brokers: CoverWallet and Coverhound so that we can compare quotes from several carriers:

>>MORE: Best Professional Liability Insurance for Small Businesses

Compare professional liability insurance quotes with CoverWallet:

We stated we were a lone sole proprietor business consultant with $35,000 in annual revenue. For professional liability insurance, we got the following quotes: Hiscox at $42/month and Chubb at $63/month. However, as you can see, they have different coverages. Chubb includes civil investigations in their policies; Hiscox doesn’t.

Compare professional liability insurance quotes with Coverhound:

With a similar business, it’s interesting to note that the Hiscox price is similar to CoverWallet, but Chubb has a cheaper monthly rate through CoverHound over CoverWallet.

We also tried to get quotes from another digital broker: APIntego. However, we couldn’t get a quote online. We put in both the professions of business consultant and accounting professional. However, for both options, we eventually got the message of, “An agent will review your information and get in touch with you ASAP.”

>>MORE: How Much Does General Liability Insurance Cost?

According to Progressive Commercial, a number of factors can affect your monthly premiums, however. Those factors include the industry and profession you work in, your location, coverage limits, your number of employees and the years you’ve been in business. All of these factors affect how much of a risk you are to insure. For instance, more employees mean more of a chance you’ll file a claim. Or experienced business owners can get lower premiums because they’ve proven they’re committed to the success of the business.

What Benefits Should You Consider for Professional Liability Insurance? 

Deductibles are an important benefit to consider in any type of insurance. According to the Insurance Information Institute, they typically range from $1,000 to $25,000. You will have to assess what type works for you based on the size of your business and annual revenue.  

Another important factor to look into with professional liability insurance is your coverage limits, or the amount the policy will pay out. These will most directly affect monthly premiums.  Higher coverage limits mean higher monthly premiums in general. However, you also want to make sure you are protected in the case of a larger lawsuit. Many limits cover plan totals and per incident.      

Final Thoughts:

  • Professional liability insurance, sometimes called E&O Insurance, covers you in case you are sued for accused or actual negligence, errors or omissions in the services or products you provided to others.
  • You have two main types: claims-made policies and occurrence policies. Claims-made covers you if the event of negligence and lawsuit happened while the policy was active. Occurrence covers you if just the event of negligence happened while the policy was active.
  • Costs can range drastically based on a wide variety of conditions, like how long your business has been operational, the different plan benefits you select and what type of industry you are in, to name a few examples.
  • The main benefits to look for are how much you’re paying in deductibles and how much the plan pays out for both incident and plan total.   
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