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Professional Liability Insurance: Definition, Coverage, Cost, & Providers

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. 

What Does Professional Liability Insurance Cover?

Common things covered by professional liability insurance include:

  • Mistakes
  • Negligence
  • Copyright infringement
  • Libel or slander
  • Inaccurate advice
  • Missed deadlines
  • Budget overruns

Professional liability doesn’t cover everything, though. You’re on your own if you engage in:

  • Intentional wrongdoing
  • False advertising
  • Employment disputes 
  • Illegal activities

Professional liability insurance only applies to clients. If you want protection against employees who may sue you, you need to get employment practices liability insurance.

Who Needs Professional Liability Insurance?

Our society has become increasingly litigious. Many people will sue not only if you make a mistake, but also if they just think you made a mistake. They can also sue you if they’re just unhappy for whatever reason. Anyone who has any specialized knowledge or expertise should get professional liability insurance. 

For example, almost 60% of doctors report being sued for malpractice at some point in their career, but in certain specialties it’s much higher. Pharmacists are often named in lawsuits against pharmacies, and it’s not unheard of for nurses and therapists to be sued by unhappy clients as well. 

Many clients come to you expecting you to solve their problems for them. They want to feel better, manage their accounts better, have you build their dream home. If things don’t turn out exactly as they expected, they can become overwhelmed with disappointment. Then they blame you for that disappointment. 

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:

Malpractice insurance usually covers doctors, other healthcare professionals, and legal 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:

  • Customers
  • Suppliers
  • Vendors
  • Contractors

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. 

What happens if I don’t have professional liability insurance?

Many states have laws requiring doctors, certain medical professionals, and lawyers to have professional liability insurance. Check with your state to see if yours is one of these. 

Even if your state doesn’t require professional liability insurance, you should have it if you’re engaged in any service-based business. Some clients want you to have it. Some clients will make you wish you had it if you don’t. 

People can sue for all sorts of reasons. For example, if you’re an engineer, your client can sue if you go over budget, miss a deadline, or if they’re just not happy. If you don’t have it, you’ll have to pick up all your own legal costs in defending yourself in court. That’s extremely stressful, and if the court finds in the client’s favor, you’ll have to pay the client damages. That can bankrupt a small business. 

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). 

Additional insured on a professional liability insurance policy

While having an additional insured on a contractor’s general liability policy is not uncommon, you can’t put a client on your professional liability policy as an additional insured. Why? 

Your professional liability insurance protects you from mistakes in the event your client sues you. They can’t be named in a lawsuit because they aren’t providing any professional services. If they were named under a professional liability policy and sued, they would be unable to collect any damages because an insured can’t make a claim against themselves.

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.

How Much does Professional Liability Insurance Cost?

What you pay for professional liability insurance will depend on the type of work you do. A general contractor will pay more than someone who does freelance accounting. However, professional liability insurance isn’t all that expensive: the median cost of professional liability insurance for a small business is about $59 a month
For a more in-depth look at how much professional liability insurance costs and to see some quotes, click here.

In order to get the best cost for your professional liability insurance, you always need to compare a few quotes. Working with a digital broker like Simply Business, CoverWallet, or Embroker is a good way to be able to compare quotes from several business insurance companies in one place.

How to Get Professional Liability Insurance Quotes?

If you’re interested in professional liability insurance, you can either go directly to insurance companies websites, or you can go to an online broker. 

Many insurance companies will provide you with a quote online. You’ll have to answer some questions about your business. For example, to get a quote from Hiscox, you’ll have to fill in:

  • Your name
  • Business name
  • Type of business
  • State 
  • Telephone number
  • Email address
  • How many locations your business has
  • Ownership structure of your business (Individual/sole proprietor, joint venture, limited liability company or LLC, corporation, trust or partnership)
  • When you would like coverage to start
  • What year you started your business
  • Estimated gross sales
  • Claim history

There’s a few more questions about the sort of work you do, but that’s most of them. A few insurance companies you might seek quotes from include:

  • Hiscox
  • The Hartford
  • Progressive
  • GEICO
  • Next
  • Thimble
  • Huckleberry

You could also go to our page on the best companies for professional liability insurance to see a few quotes and how we got them. 

Alternatively, you could also go to an insurance broker. An online insurance broker will take your information and then get quotes for you from the companies they partner with. This is an easier way for you to get several quotes at once and compare them. Some examples of online brokers for small business insurance are:

  • CoverWallet
  • Simply Business
  • Embroker

In any case, make sure you shop around and get quotes from at least three companies before you commit to a policy. 

Professional Liability Insurance vs. General Liability Insurance: How Different are They?

General liability insurance covers physical risks, such as bodily injuries (to third parties, not to your employees) and property damages. Professional liability insurance covers you for mistakes you make in the performance of your job. For example, if you’re a software developer and your new software corrupts your client’s computer and destroys all of their data, they will sue you for damages. That’s where professional liability insurance comes in. It covers your legal fees, court costs and any damages found for your client. 

Many businesses need both types of insurance. A client could injure themselves by tripping over a power cord if you have a computer consulting business, in which case you would need general liability insurance. Or, you could miss a deadline for a client, and they could sue you, in which case you want professional liability insurance. Many clients require small businesses to have both kinds of insurance, and some states require small businesses to have it. To oversimplify it, general liability covers physical damages and professional liability covers financial losses. 

Is Professional Liability Insurance the Same as E&O Insurance?

Yes, professional liability insurance and E&O insurance are used interchangeably to describe the same insurance. Which term is used often depends on the industry you work in. It’s also known as malpractice insurance if you work in health care or the legal profession. 

Once upon a time, professional liability insurance was called that because doctors and lawyers—professionals—were the ones that used it, while semi-professional occupations got E&O insurance. These days, no matter what you call it—E&O, professional liability or malpractice, it’s all the same type of insurance. 

Professional Liability Insurance Requirements by State

Some states do require professional liability insurance for certain occupations. As a general rule, if your business provides services under a federal government contract, you probably need professional liability insurance. 

Many states require contractors to have professional liability insurance. Most states require doctors and lawyers to have it as well. Laws vary from state to state: check with your state to see the requirements for your profession. 

Professional Liability Insurance in California

There are no caps in professional liability insurance law suits in California. The sky is the limit when it comes to what people can use for if they believe you make a mistake in offering your service and advice in California. It can be outrageously expensive. For that reason, you need to have professional liability insurance coverage when practicing your profession in California. Check out the details of professional liability insurance requirements in the state of California, the cost, and the best providers in California: Top 5 Providers of Professional Liability Insurance in California

Professional Liability Insurance in Texas

It is not required to have professional liability insurance in Texas, even for doctors or any medical professions. In fact, Texas is the only state not requiring doctors to have malpractice insurance. However, hospitals and clinics in Texas might still require doctors and nurses to carry malpractice insurance policy before they can be hired. As a result, professional liability insurance can be a bit non-standard here. If you want to protect yourself in Texas, check out the details of its requirements, cost, and the best providers in Texas: Top 5 Providers of Professional Liability Insurance in Texas

Professional Liability Insurance in Florida

Florida is named as the nation’s worst “judicial hellhole” by the American Tort Reform Foundation because of how sue-happy residents can be here. It has one of the highest rate of professional liability claims and law suits. If you offer any service in Florida, you need to ensure you have a good professional liability insurance policy to protect yourself and your business. See our coverage of Top 5 Providers of Professional Liability Insurance in Florida

Last Thoughts

You may think that the chances of someone suing you over a mistake you made are slim. But keep in mind that all it takes is one unhappy client and your whole world could come crashing down. Professional liability insurance is relatively inexpensive, especially when you consider all the lawsuits it can protect you from. 

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