Dec 04, 2024
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Professional liability insurance protects business professionals from lawsuits that allege mistakes or negligence. Most people associate it with medical malpractice, but it covers a lot more than that.
Professional liability coverage is extremely important for professionals and businesses in the service or consulting industry, including attorneys, accountants, consultants, engineers, and other professions. Whether you’re a business owner or an employee, you might have questions about professional liability insurance — what it covers, how much it costs, and when you need it.
Many professionals choose to buy professional liability insurance as a form of protection. This is the “I hope I never make a mistake that hurts someone else, but if I do, I don’t want it to financially destroy me or my business” type of insurance.
Professional liability insurance protects you in case of a lawsuit filed by a client over an alleged or actual mistake or a bad piece of advice. Where general liability insurance is designed to cover accidents that could happen in almost any setting (e.g., client slips and falls on your property), professional liability insurance is for something like you miscalculate medication dosage/financial figures/advice resulting in damage to a client.
It’s important to understand that professional liability insurance isn’t just for business owners or medical professionals — employees and independent contractors in a variety of industries may also want it so they don’t have to worry about financial distress from a lawsuit.
Professional liability insurance is often necessary because general liability insurance typically excludes claims of negligence, malpractice, or misrepresentation. “A person may need professional liability insurance if they have clients, because this type of insurance helps protect a person against claims like negligence, inaccurate service, and misrepresentation,” explains Ben Michael, attorney at Michael & Associates.
Business professionals typically need professional liability insurance when the risk of their mistake could cost a company, person, or family a lot of money, pain, or suffering. This means that every profession, from an architect to a dentist, could benefit from coverage. The protection can help offset the financial burden and stress a lawsuit could bring. Here’s a list of professions who often buy professional liability insurance:
A professional liability policy is designed to protect you, the professional, from claims in the case of:
According to Michael, “It is typically recommended for those who run their own businesses to get this kind of insurance, as well as for many freelancers.” Freelancers are in business for themselves and don’t have protection from an employer’s liability policy. Having their own coverage can insulate freelancers from the financial burden of a lawsuit.
Daniel J. Struck, partner and insurance practice chair at Culhane Meadows, agrees: “I have seen a surprising number of small and medium-sized companies discover they need insurance, because those companies provide technology, design, or other services that require a particular level of skill or expertise.” A mistake could cost their client a lot of money, and professional liability insurance can offer financial protection against claims and lawsuits.
Before we dive into everything you need to know about professional liability insurance, here’s a mini glossary of words you might see used or see in a future policy.
A COI is a document issued by the insurance company describing coverage and summarizing the most important details of a policy, including the effective dates. This document is most commonly used to confirm that insurance coverage meets requirements detailed between two parties involved in a binding agreement.
Claims-made policies cover incidents only if the claim is made against the insured and reported to the insurer during the policy period.
Learn more about claims-made policies vs. occurrence policies
These are attorneys’ fees and expenses, court filing fees, and money paid to expert witnesses. This is separate from the money that might be needed to pay the claimant/plaintiff for a settlement or court judgment.
Liability limits refer to the maximum amount the insurance company will cover on a case-by-case basis or over a given period of the policy. Limits of liability have two components: how much the policy will cover per claim (or per occurrence) and the maximum it will cover over a given period of time before a possible renewal (known as the aggregate limit). You also might hear limits of liability mentioned when discussing whether defense costs are “inside the limits” or “outside the limits” of the policy. If defense costs are inside the limits of liability, the money paid to the lawyers will reduce the amount available to pay a settlement or judgment.
Learn more about limits of liability
Occurrence policies cover incidents that occur during the policy period, no matter when the claim is filed.
Insurance coverage purchased in addition to an existing policy is a supplemental insurance policy. Professionals might buy this when their employer has a policy that covers all employees, but they are concerned the employer’s policy won’t give them enough coverage or control in decisions. Medical professionals might also buy supplemental coverage if they want protection in board actions, which employer policies often don’t assist with.
This type of coverage extends the coverage of a claims-made policy after the original policy ends. You would likely buy tail coverage if you were leaving a job and had a claims-made policy with that employer. Medical professionals may get free tail coverage if they are retiring and held a policy with the insurer for a specific amount of time.
Learn more about tail insurance
Professional liability insurance can provide you with an attorney, pay for your defense costs, and cover related settlement payments. “Professional liability insurance covers a variety of claims, including negligence, inaccurate or undelivered service, misrepresentation, copyright infringement, and personal injury (libel or slander),” says Michael.
What does this mean for you as a small business owner, independent contractor, or healthcare worker? You’ll have financial protection if you’re:
All these scenarios need legal counsel and finances to assist in your defense.
While professional liability covers some key risks, it does not cover everything that might go wrong at your place of work. For example, professional liability insurance typically does not cover defense costs or liability for the following categories of claims:
For covered claims, professional liability insurance policies can shield you from the financial impact of defending a claim against you. Policies typically cover legal expenses such as:
Professional liability insurance doesn’t cover everything. For example, it does not cover claims such as property damage, discrimination, or business claims.
In addition, according to Struck, “A recurring challenge for insureds is that the lines between what constitutes an error or omission triggering professional liability insurance and an accident that triggers general liability insurance are not always well defined.” He emphasizes the need for both professional liability and general liability to avoid a gap in coverage.
Professional liability and general liability insurance get mixed up all the time. Sometimes these can be purchased together, but often a small business owner will have to buy them separately. Here’s how these policies are different:
Many people associate professional liability insurance with errors and omissions (E&O) insurance, but it’s much more than that. Professional liability is a larger category that includes E&O, business liability (general liability), and medical and dental malpractice insurance.
A professional liability policy with E&O coverage protects people who provide advice for a living. It generally protects you, your company, and your employees if a customer sues you for negligence, errors, misrepresentation, or mistakes.
For example, suppose an accountant at your firm offers advice to your client that leads to a large financial loss. Your client could sue your firm for negligence, and E&O insurance can help pay for defense costs and judgments or settlements relating to the claim
Learn more about E&O insurance
Business liability is a type of insurance that protects against bodily injury, property damage, and personal injury claims. Business insurance can provide indemnification and legal representation if you or your business is sued by a customer or client who has suffered bodily or personal and/or property damage due to an act perpetrated by you or someone in your company.
Medical malpractice insurance is specific to healthcare professionals. It protects healthcare professionals and providers if they make a medical error that causes harm. You may be covered if you neglect to provide appropriate treatment, fail to take an appropriate action, or provide treatment to a patient that causes harm, injury, or death.
Dental malpractice is a type of medical malpractice insurance for dental professionals. Examples of dental malpractice could include failure to diagnose oral or tongue cancer, root canal mistakes, improper administration of anesthesia, or errors or negligence when placing crowns, bridges, fillings, or dental implants.
Professional liability insurance isn’t a one-size-fits-all proposition. The factors that influence cost may include the nature or size of your organization and the professional services you provide to clients. A policy for a dentist, for instance, will be vastly different from a policy for a yoga instructor.
The cost of professional liability insurance also varies due to location, policy limits, and additional coverage you may need, such as business or general liability coverage. Here are some starting figures for policies to help you get an idea of what you might pay for coverage. While the nurse policy is based on supplemental pricing, the other industries are based on primary insurance figures.
| Profession | Cost* |
| IT Consultant | $171+ per year |
| Nurse | $87 per year |
| Dentist | $342+ per year for a claims-made policy
$1,123+ per year for an occurrence policy |
| Financial Planner | $623+ per year |
| Personal Trainer | $582+ per year |
| Professional Organizer | $293+ per year |
| Software Developer | $171+ per year |
| Tax Preparer | $366+ per year |
_Annual cost is based on industry pricing averages. Your cost will depend on several factors, including your particular profession, your location, how much revenue your business generates and the services you provide, and any previous claims filed against you. These prices are based on Texas professionals earning $100,000 per year._
Before you purchase professional liability insurance, you should consider a few things. First, you will want to find out whether you’re insured under an employer, agency, or institutional policy (and what that coverage includes). This will inform whether your policy would be primary or supplemental coverage and what limits of liability you are comfortable with.
There are many insurance companies that offer professional liability insurance. When researching which one is right for you, you might want to start by reading the “About Us” section of the insurance company’s website. You should also read through the insurance policy details or ask a sales agent for specifics, such as:
Above all, you should find a reputable insurance company, compare prices, and understand coverage, caps, and exclusions in the policy you are considering.
Here’s what you will find if you explore one of the three types of professional liability insurance policies at Berxi.
Berxi’s Professional Protection – Healthcare is available in both occurrence and claims-made policies for a range of healthcare professions. Our medical malpractice policies include:
General liability and Medicare/Medicaid reimbursement can also be purchased a la cart. With a Berxi policy, you’ll get even more than what’s listed in coverage; we provide you with world-class customer service and expert claims support, all delivered with empathy at an affordable price.
Curious how we stack up? Compare Berxi’s medical malpractice insurance with the competition.
With no membership fees required, Berxi offers affordable claims-made and occurrence policies for dental professionals, dental students, and new grads. Our Professional Protection – Dental policy typically includes:
Backed by Berkshire Hathaway Specialty Insurance Company, Berxi provides more value with an A++ financial strength rating from AM Best, excellent customer service, and a claims team focused on empathy and respect.
See how our dental malpractice insurance stacks up: Compare Berxi to other dental malpractice providers.
Berxi’s Professional Protection – Liability can give you a sense of confidence with the financial strength of an A++ (Superior) rating, our excellent customer service, and top-tier claims support, without additional broker fees. Some inclusions in a Berxi E&O claims-made policy consist of:
If you’re a real estate professional, we’ve got you covered with a real estate E&O policy that includes specific protections like Fair Housing Act coverage and Failure to Disclose Pollutants coverage. Check out the Berxi difference and see how our E&O policy compares.
When you’re ready to shop for professional liability insurance, watch for red flags before you purchase a policy. Besides making sure the policy meets your business needs and covers the services you provide to your customers, check the strength of the underwriting company and its credit rating, both of which are important factors.
Anyone who owns a business or operates as an independent contractor or freelancer should consider professional liability insurance. However, shopping for a policy can be tricky. “I cannot overstate the importance of making sure that an insured’s services are properly defined and that gaps between professional liability insurance and general liability insurance are avoided,” advises Struck.
Take the time to learn more about the coverage and make an informed decision on whether it’s right for your business. If it is, research carefully before purchasing a policy so you understand what the coverage includes, as well as any policy caps or exclusions.
Image courtesy of istock.com/JoyImage
Last updated on Dec 04, 2024.
Originally published on Apr 10, 2024.
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Amy Beardsley is a seasoned writer and content strategist who works with financial services firms, insurance companies and financial tech organizations. Her industry experience allows her to add value beyond writing and help clients at a more strategic level with their content. In addition to creating insurance content for Berxi, Amy has worked with Legal & General, NerdWallet, Everyday Life Insurance and NEXT Insurance.
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