Professional liability insurance protects you if you or your business harms someone due to negligence or mistakes. Professional liability insurance is necessary in most cases because general liability insurance doesn’t cover you for any mistakes, negligence or misrepresentation. Professional liability insurance (PIL) will do that for you.
- Professional Liability Insurance vs. Malpractice vs. Errors & Omissions insurance
- Claims-Made vs. Occurrence
- What Doesn’t Professional Liability Insurance Cover?
- How Much Professional Liability Insurance Do You Need?
Professional Liability Insurance vs. Malpractice vs. Errors & Omissions insurance
Basically, all these terms refer to the same type of insurance—the difference is in what professions they cover. Professional liability insurance usually covers:
- Teachers – The 3 Best Providers of Professional Liability Insurance for Teachers
- Accountants – Professional Liability Insurance (E&O) for Consultants, Investment Advisors, and Other Financial Professionals
- Architects and Engineers – Top 5 Providers of Professional Liability Insurance for Architects and Engineers
- Beauty or salon workers
And anyone who is expected to have specialized knowledge or expertise. It’s very important if you own your own business to get professional liability insurance because customers can hold you accountable for any mistakes you make.
Malpractice insurance usually covers doctors and other healthcare professionals. Errors and omissions insurance is basically the same thing as professional liability insurance, it’s just a different name.
You’ll especially want professional liability insurance to protect yourself if you work with:
As we know, people are much more aware of their rights and they are far more likely to file a lawsuit against you if they are not happy. If you’ve made any kind of mistake, clients can sue.
For example, say you’re a tax preparer and you submit someone’s taxes. The customer is happy because they receive a $2,000 refund. That person is later audited. Due to an error in your calculations, they not only have to pay back the $2,000, they owe an additional $3,000. That person would be well within their rights to sue you for that mistake because as a tax preparer, you should know how to calculate taxes—that’s what they hired you for.
Claims-Made vs. Occurrence
When you start shopping around for professional liability insurance, you will have a choice between claims-made or occurrence insurance. Claims-made is usually less expensive, but it’s also less comprehensive because it only covers you for mistakes you make while the policy is active.
Occurrence based insurance covers you for any claims that occurred while the policy was active, regardless of whatever date the claim was filed. Say you have claims-made insurance as the tax preparer in the above example. You have this insurance from July 1, 2019 to July 1, 2020. If you client files suit sometime between those dates, you’ll be covered. If this person thinks about things for a while and doesn’t file suit until October 25, 2020, you will not be covered under claims-made insurance, but you would under occurrence based covered because you had insurance when the mistake occurred (this assumes the incident occurred during tax season).
What Doesn’t Professional Liability Insurance Cover?
Professional liability doesn’t cover you for everything. It typically doesn’t cover:
- Customer injuries or property damage (you’ll need general liability for that)
- Discrimination lawsuits
- Criminal liability
- Criminal defense
- Malicious or dishonest acts
In addition, cyber security hacks might not be covered, but you can purchase additional insurance for that.
How Much Professional Liability Insurance Do You Need?
When calculating how much PIL you need, you’ll want to take these things into account:
- Size of your business
- Level of risk
- How many employees
- What service you provide
It might be best to meet with a financial professional to discuss your needs before settling on an amount, as many factors will affect your needs. Some clients like to see that you do have PIL. Get a policy of at least $1,000,000 to protect yourself.