What Is Professional Liability Insurance?
Professional liability insurance (PLI) protects professionals such as accountants, lawyers, and physicians against negligence and other claims initiated by their clients. Professionals with expertise in a specific area require this type of insurance because general liability insurance policies do not offer protection against claims arising from negligence, malpractice, mistakes, or misrepresentation.
- Professional liability insurance is used to protect businesses against claims of negligence.
- Professionals such as accountants, architects, information technology specialists, doctors, and professionals that contract their services use this insurance.
- On average, PLI costs between $500 and $1,000 yearly, much less than a lawyer, court fees, and related expenses.
How Professional Liability Insurance Works
Depending on the profession, professional liability insurance may have different names, such as medical malpractice insurance for the medical profession or errors and omissions insurance for real estate agents. Professional liability insurance is a specialty coverage not provided under homeowners' endorsements, in-home business policies, or business owners' policies.
Professional liability insurance policies are usually claims-made, which means coverage is good only for claims made and events occurring while the policy is active. You might also find occurrence policies, which means you're covered if an incident occurred while you had coverage—even if you let your policy expire and a client files a claim against you after it expired. However, occurrence policies are rare.
Typical professional liability policies will indemnify the insured against loss arising from any claim or claims made during the policy period because of any covered error, omission, or negligent act committed in the conduct of the insured's professional business during the policy period.
What Is Included in Professional Liability Insurance?
Coverage does not include criminal prosecution, nor all forms of legal liability under civil law, only those listed in the policy.
Examples of liabilities not covered by PLI are:
- Employee injuries
- Employee discrimination lawsuits
- Vehicle business use
- Bodily injury
- Business property damage
- Customer injuries or damages
Cyber liability, data breaches, and other technology-based issues may not be included in core policies. However, insurance that covers data security and other technology-based security issues is available as a separate policy.
Examples of liabilities covered by PLI are:
- Mistakes, errors, and oversights in services provided
- Undelivered services
- Missed deadlines
- Negligence or failure to meet standards
- Breach of contract
Professional Liability Policy Wording
Professional liability policies tend to be worded differently between providers. Some might be expressed in ways that make them easier to compare, while others might differ enough that what appears to be the same coverage isn't.
Wording with significant legal differences can be confusingly similar to non-lawyers. For example, consider these two phrases:
- Negligent act, error or omission
- Negligent act, negligent error, or negligent omission
Coverage for "negligent act, error or omission" indemnifies the policyholder against loss/circumstances incurred only as a result of any professional error or omission or a negligent act. A negligent error or negligent omission would not be covered because of the wording.
The "negligent act, negligent error, or negligent omission" clause is interpreted differently than the previous clause. For an error or omission to be covered, it must be determined to have been negligent and not simply an error or omission. If you wanted all five types of incidents to be covered, the clause might need to read "negligent acts, negligent errors, negligent omissions, errors, or omissions."
Before purchasing a policy, you should talk to a lawyer familiar with professional liability insurance. You don't want to buy coverage and not be covered because the provider's wording doesn't allow an incident to be covered.
How Much Does Professional Liability Insurance Cost?
How much you pay for this type of insurance will depend on the area you practice in, the field you're in, and the number of claims you've had against you. Other factors that might affect your policy's price are the number of employees you have and how many years you've been in business.
Like other types of insurance, coverage limits and deductibles also influence how much you'll pay. According to insurance provider Insureon, the median cost for professional liability insurance is $59 per month, with most policies costing between $500 and $1,000 per year.
Who Needs Professional Liability Insurance?
If you work for a company that offers services, the company should have PLI, and your services should be covered under its policy. However, if you're a small business owner providing professional services or contracting your services to other businesses, you should consider purchasing this type of insurance. Some examples of professionals who need this insurance are:
- Insurance agents
- Real estate agents
- Financial advisors
Who Should Get a Professional Liability Insurance Policy?
Professionals and businesses that provide services to customers should get a professional liability policy. These policies cover claims against you and your company for professional errors, mistakes, judgments, or failed service delivery.
What Are the Two Basic Types of Professional Liablity Policies?
The two types of professional liability insurance are claims-made and occurrence. Claims-made means the policy must have been active when the event and lawsuit happened, and occurrence means that the policy covers any qualified claim resulting from an incident while the policy was active.
What Is the Difference Between Personal and Professional Liability Insurance?
Personal liability insurance covers damages or injuries to others on your personal property. Professional liability insurance covers you if claims are filed against you for professional negligence, errors, omissions, or other issues that can arise if you provide professional services for a living.
The Bottom Line
Professional liability insurance is coverage for small business professionals like doctors, lawyers, accountants, or architects for protection against professional mistakes. It is essential coverage because mistakes happen regardless of how careful or experienced a professional is.
PLI costs between $500 and $1,000 per year, so it's cheaper than footing the bill for a lawyer, court costs, and other related expenses. If you're a small business owner, you should talk to an insurance agent to determine if you need coverage and how much you should get.