Consultants provide advice and services for their clients. Even the most careful and by-the-book consultants can make mistakes and get sued. These lawsuits are often for millions of dollars, enough to put a consultant out of business.
That is why it’s crucial to protect the consultancy you’ve built with professional liability or errors and omissions (E&O) insurance. This article will explain how much it costs, the value it provides, and what you need to know to get the right coverage to protect your consulting business.
- How much does professional liability insurance cost for consultants?
- How much does E&O insurance cost for technology consultants?
- How much professional liability insurance do consultants get?
- What factors impact consultant professional liability insurance costs?
- How to get cheap consultant professional liability insurance?
- What does consultant professional liability insurance cover?
- Are consultants required by law to get professional liability coverage?
- Best professional liability insurance companies for consultants
How much does professional liability insurance cost for consultants?
Consultants pay an average premium of $58 per month, or $670 per year, for a professional liability insurance policy, also known as errors and omissions insurance. This is relatively little when you consider that it pays legal and settlement costs associated with lawsuits related to professional mistakes and accusations of negligence, which can run to a million dollars or more.
In one study, of all the consulting businesses that get professional liability insurance, 20 percent pay less than $600 per year, and 45 percent pay between $600 and $1,200 annually. The rest pay more than $1,200 for a year of coverage, usually because they work in risky industries or have made a professional liability claim in the last three years. Some of the risky industries for consultants are investment and finance, technology, and construction.
How much does E&O insurance cost for tech consultants?
The work that technology consultants do has a different risk profile because they have to make sure their work is not increasing the cyber risk and data breach risk for their clients. That’s the reason why tech consultants usually get an E&O insurance policy with additional cyber insurance coverage, which is usually referred to as tech E&O insurance.
The average cost of a tech E&O insurance policy is $95 per month, or $1,140 per year. Most tech consultants pay around $900 to $1,500 a year for their tech E&O insurance policy.
How much professional liability insurance do consultants get?
Policy limits are how much your insurer will pay on covered claims. A per-occurrence limit is a maximum amount an insurer will pay for a single incident. An aggregate limit is the most your insurance company will pay out on all claims during your policy period, usually one year.
Over one-half of consultants purchase professional liability policies with a $1 million per-occurrence limit and a $1 million aggregate limit.
Higher limits cost more and provide more coverage. An insurance agent or representative at a business insurance company can help you select a limit to cover the risks you face without paying for unnecessary protection.
What factors impact consultant professional liability insurance costs?
This coverage is unique, just like every consulting business is unique. That’s why it’s challenging to provide a simple answer to the absolute cost of professional liability coverage. It will differ from consultant to consultant.
Here are a few factors typically used to calculate professional liability insurance premiums:
- Business trade
- Policy limits
- Professional experience and education
- Claims history.
How the insurer calculates consultant professional liability insurance premiums will impact costs. You must get several quotes from different insurers to ensure that you get the right coverage for you at the best possible price.
How to get cheap consultant professional liability insurance for consultants?
Below are a few tips to reduce the cost of consultant professional liability insurance:
Get the right policy terms
Different coverage limits and deductibles impact the cost of professional liability insurance for consultants. Make sure you get the right coverage limits and deductibles for your policy. Don’t get too high coverage limits or too low deductibles if you don’t need to. That can increase the cost of your consultant professional liability insurance policy.
Follow all risk prevention practices and standards in your industries
The practitioners in different industries are exposed to different types of risks. There are different risk prevention standards available in each industry and usually recommended by leading industry trade groups or associations. Be sure to implement and follow these risk prevention standards. That will help you prevent mistakes and claims and you may also get discounts for having these practices in place.
Compare several quotes to find the cheapest policy
Last but not least, the oldest but also the most effective way to find cheap consultant professional liability insurance policy is to get and compare several quotes to find the cheapest one. It is relatively easy to get several quotes online from CoverWallet, Simply Business, or Thimble. Each of them shouldn’t take you more than 10 minutes. Comparing all of these quotes will help you find the cheapest one for your consulting business
Is professional liability insurance tax deductible?
Because the Internal Revenue Service (IRS) categorizes insurance policy premiums as business expenses, it should be okay to deduct the cost of professional liability insurance on your income tax return. It’s another way to “save money” on professional liability insurance coverage.
It’s essential to consult with a reputable accountant or tax professional to make certain that your business tax returns are filed correctly and that you’re only taking allowable deductions.
What is professional liability insurance?
Consultants provide advice or personal services to customers. That puts them at extraordinary risk because they could provide inaccurate or incomplete advice or make a mistake in delivering services.
In short, professional liability protects your business if you make mistakes or deliver services a client isn’t happy with. It covers legal and settlement costs if a client sues you over an error or misstatement.
What does consultant professional liability insurance cover?
Here are some scenarios that illustrate what this insurance covers:
You’re an accountant. You advise a client on a tax move that could save them a lot of money in taxes. They agree to it, but in the end, it costs them more. They sue you over the added expense. Professional liability insurance for consultants would pay legal and settlement costs over the incident.
You are a wedding consultant. A bride selects a wedding cake based on your recommendation. The baker makes a scheduling error, and the cake is not delivered to the wedding. The consultant sues you because of the missing wedding cake. Professional liability insurance would pay legal and defense costs whether you’re held liable for the incident or not. It will also pay damages if you are.
You work as an independent financial advisor. You advise a client to purchase a business because it could double their revenue. Instead, the company tanks. It almost puts the business you advised to buy it out of operation. They sue you over the wrong advice. Your consultant’s professional liability insurance will pay legal and settlement costs up to policy limits.
You work hard every day to deliver the best advice or services to your clients. But, you’re human, and mistakes occur. Professional liability insurance can help protect the business you’ve worked so hard to build if — or when — you make an error and are sued over it.
What doesn’t professional liability insurance for consultants cover?
Professional liability insurance has limits. It doesn’t cover:
- Malicious, dishonest, criminal, or illegal activities you’re sued over
- Copyright, patent, or trademark infringement
- Bodily or physical injury
- Property damage
- And more.
Do consultants need professional liability insurance?
E&O insurance covers you if you make a mistake while offering professional services or provide incorrect or incomplete advice. People are only human, and they make mistakes. It’s why most consultants buy professional liability insurance. It provides a safeguard against expensive claims that may be filed against you resulting from errors or negligent actions.
Are consultants required by law to get professional liability coverage?
Each state issues its laws governing the requirements of operating a small business, including which insurance coverage you need. An experienced business insurance agent or insurance company representative will let you know which coverages your state will require you to secure.
Remember: Even though you may not be legally bound to have professional liability insurance, the coverage can protect the consulting business you’ve worked so hard to build if you ever make an error and are sued over it.
Is professional liability insurance for consultants the same as errors and omissions coverage?
The insurance terms professional liability and errors and omissions are often used interchangeably. However, there are subtle yet significant differences between the two types of coverage. Overall, both policies cover mistakes and errors made by you when providing consulting services to clients. The chief distinction comes down to the type of consulting you do.
Errors and omissions coverage is more commonly purchased by accountants, tax preparers, financial advisors, and business consultants, who provide more guidance-centered services. A professional liability policy is usually purchased by people who provide physical services, such as bakers and estheticians.
Best professional liability insurance for consultants
Professional liability insurance for consultants is a popular policy. Many insurance companies offer it, which can make it a bit confusing to find the best companies for your needs. We have done the research and here are the our recommendations of the best companies offering professional liability insurance for consultants.
- CoverWallet: Best for Comparing Online Quotes
- NAPA: Best for Investment Advisors
- TechInsurance: Best for IT Professionals
- The Hartford: Best for Accounting Accountants
- Biberk: Best for Tax Preparers
- Markel: Best for Financial Advisors