Why Do Consultants Need Professional Liability Insurance?

Thang Truong
Thang Truong
Updated on:

As a consultant, you maintain a fast-paced schedule, and some days you feel like you barely have time to breathe. You certainly don’t have time to sort out and purchase insurance. So, we decided to look at professional liability insurance and why you need to have this kind of coverage. 

What is professional liability insurance? 

Professional liability insurance is also called errors and omissions (E&O) insurance. It’s called errors and omissions insurance because your expertise is your product or service as a consultant. 

Of course, that means you can be subjected to negligence claims. In other words, you can be sued if you forget something or make a mistake that costs your client money. Sometimes you can be sued for negligence even if you made no mistakes. 

Whether you are at fault, professional liability insurance can help you get an attorney and pay the expenses associated with the legal issues. If you are found liable, your liability insurance will cover the damages you are ordered to pay. 

If you don’t have professional liability insurance, you are personally responsible for covering these costs. Covering the costs can put your business, and possibly your personal assets, at risk of loss. Some companies offer retroactive coverage, so even an accusation related to a past event will be covered. 

Why do consultants professional liability insurance? 

As a consultant, your job is to provide your clients with your advice. Your advice is the main product of your business and you are essentially selling your advice. If your clients incur bodily injuries or property damages in any form from following your advice, they can choose to sue you whether or not you are at fault.

Even if you are not at fault, defending a lawsuit is very costly and requires a lot of expertise and experience. Without professional liability insurance coverage, you can be bankrupt and your career can be ruined.

Even if you are the most meticulously careful practitioner in your field, you can never be perfect. Mistakes and/or omissions can be always made. Even if you were perfect, you can’t stop your clients from suing you. That’s the reason why consultants need professional liability insurance protection.

What does professional liability insurance cover? 

Professional liability insurance covers your defense costs if you’ve been accused of negligence, neglect, misinformation, or mistakes. Even if there is no basis for the claims against your business, your policy will cover you. 

Without professional liability insurance, your business will have to pay any legal costs you are subjected to. A lawsuit of that magnitude can send your business into bankruptcy. If you operate your business as a sole proprietor, you could be personally responsible for financial damages and legal fees if you haven’t purchased professional liability coverage. 

What claims do professional liability insurance policies protect against?

Professional liability insurance is also known as errors and omissions coverage. These coverages protect you if you give a client bad advice. You will be protected if you make compliance or reporting errors. Professional liability insurance can protect you if you missed a promised deadline with a client. 

Professional liability insurance for IT and tech consultants

An error in the IT field can potentially expose sensitive information. If a client feels that you gave them bad advice, you could be open to lawsuits. Some companies offer specialized coverages for IT consultants that bundle a professional liability policy with cyber liability insurance

Learn more at the best professional liability insurance for IT & tech consultants

Professional liability insurance for engineering consultants

Engineering consultants are the people you call when you are designing and building a project. If there is a mistake in the design, it can be devastating for the entire project. If the engineering consultant makes a mistake and the client loses money, they could potentially sue the engineering consultant. This is why engineering consultants should invest in professional liability insurance. 

Learn more at the best professional liability insurance for engineers

Professional liability insurance for educational consultants

You advise people on curriculum choices or education plans as an educational consultant. If the student, family, or school system expected specific outcomes that weren’t met, they could sue you. Professional liability insurance for educational consultants can protect you from the legal fees and the settlement amounts you might be required to pay. 

Learn more at the best professional liability insurance for teachers

Professinoal liability insurance for business consultants

A business consultant works hard to help clients achieve their business goals. Sometimes, the client becomes dissatisfied with how their consultant performed the job. When the client doesn’t like the results provided by their consultant, it can mean they sue the consultant or consulting firm. Having professional liability insurance can help save you the cost of an impending lawsuit. 

Professinoal liability insurance for marketing consultants

Incorrect projections or miscalculating analyzed data can cause issues for marketing consultants. Professional liability insurance will help protect you financially if someone claims they lost money because you made a mistake. 

Professinoal liability insurance for environmental consultants

Consultants who work in industries that create environmental impact statements can benefit from finding a policy that includes pollution incidents as part of the coverage. The coverage is rarely used, but it’s worth having because if there ever is a pollution incident, the cost of that can be extremely high. No coverage, in that case, would almost certainly ruin a business. 

Cost of professional liability insurance for consultants

The average cost of professional liability insurance for consultants is $58 per month, or $670 per year. Most independent consultants pay between $550 to $1,200 per year for their professional liability insurance policy.

These are just the averages. Your rates will be different. Be sure to shop around with a few companies or work with a broker like CoverWallet or Simply Business to compare several quotes to find the cheapest one for you.

There are multiple factors that contribute to the cost of professional liability insurance. Those factors include the following: 

  • Your industry
  • Your chosen coverage limits
  • The size of your firm
  • Any prior lawsuits

Typical professional liability policies have a $1 million limit, but coverage limits can vary from $250,000 to $2 million. The amount of coverage you need depends on the amount of risk your business faces. 

Learn more at how much professional liability insurance for consultants costs

Other insurance coverages consultants should consider

There are other kinds of insurance that your consulting business could benefit from having. Those include: 

Best professional liability insurance companies for consultants

Hundreds of insurance companies offer professional liability insurance for consultants. Each company may be focused on serving a particular type of consultants. Different types of consultants may have different nuances in their practices. A good professional liability insurance policy should have the right coverages that are relevant to their practices.

We have researched more than 30 companies and here are our recommendation for the best professional liability insurance companies for consultants.

Final thoughts

A primary insurance coverage that all businesses, especially consultant businesses, need is professional liability insurance. This coverage can protect you if you are sued by a client who claims you were negligent in your business practices with them. Your insurance will help you find and retain a lawyer, pay for your defense, and pay any judgments against you. Having this coverage can save your business if anyone makes allegations against your business. 

Professional liability insurance isn’t the only beneficial policy that businesses can have, but it is essential for those in the consulting business. If you don’t have professional liability insurance, you should contact your agent or broker to learn about the kinds of coverage you need.

Thang Truong
Thang Truong

Thang Truong covers small business insurance and small business success at BravoPolicy. He is a licensed P&C insurance agent. Previously, he held product leadership positions at realtor.com, Capital One, NerdWallet, and Mulberry Technology. He holds a MBA degree from UC Berkeley - Haas School of Business.

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