What is professional liability insurance and why do you need it?

Whether you were searching the internet for ‘errors and omissions insurance’ or ‘what kind of insurance do I need for my small business?’ we’re glad you found this post.

Business insurance is not one of those items you want to push to the back burner. As soon as you open your business, you want to be sure your assets are protected. Keep reading for the details on Professional Liability insurance, what it covers, who needs it, and how to choose the best coverage for your small business.

What is professional liability insurance?

Simply stated, professional liability, also known as errors and omissions (E&O) insurance, is a policy structured to protect small business professionals from potential legal claims and financial burdens resulting from negligence, mistakes, errors, or omissions in the professional services offered by the business.

Professional liability insurance is essential for protecting professionals from the financial consequences of potential lawsuits and claims. It offers peace of mind and helps maintain the reputation and financial stability of individuals and businesses that rely on their expertise and services. As with any insurance policy, it is crucial to carefully review the terms, conditions, and coverage limits to ensure it meets the needs specific to your business.

Who needs professional liability insurance?

Understanding what professional liability insurance is makes it easier to identify who might benefit from having a policy. 

If you offer professional services or advice, or if your work includes offering expertise to clients, you should consider obtaining this type of insurance. Here are some examples (not a complete list) of professionals who often need professional liability insurance:

• Allied health professionals
• Accountants and tax professionals
• Consultants and advisors such as management consultants, business advisors, and other professionals providing guidance or coaching
• Technology professionals including IT consultants, software developers, and tech experts
• Architects and engineers
• Real estate agents and brokers
• Marketing and advertising professionals
• Educators and trainers: tutors, instructors, and educational consultants
• Event planners and organizers

It’s important to remember that the need for professional liability insurance can vary based on the nature of your services, the industry you work in, the size of your business, and the potential risks associated with your work. Before buying a policy, it's essential to assess your specific risks and consult with an insurance professional to ensure you get the right coverage to protect your professional interests.

How does professional liability insurance protect you?

Professional liability insurance protects professionals and small businesses in several ways. It provides a safety net against potential legal claims and financial losses resulting from errors, mistakes, or negligence in their professional services.

Let’s take a quick look at how professional liability insurance can protect you.

Coverage for legal costs
If a client or a third party alleges that you made mistakes or were negligent in providing your professional services, and as a result, they suffered financial harm or damage, professional liability insurance can cover the costs of defending against the claim. This includes legal fees, court costs, and other expenses associated with mounting a legal defense.

Damages and settlements
If you are found liable for the alleged professional negligence, errors, or omissions, and you must pay damages or a settlement to the affected party, your professional liability insurance will typically cover these costs up to the policy's coverage limit. This can prevent substantial financial losses that might otherwise threaten your business or even your personal assets.

Defense costs
Even if the claim against you is groundless, having professional liability insurance ensures that you can still mount a defense against the claim. Defending against lawsuits can be expensive, even if you are not at fault. Having insurance coverage can alleviate that financial burden.

Reputation protection
Being sued for professional negligence can damage your reputation and erode clients' trust in your services. Having professional liability insurance shows your clients that you take your responsibilities seriously and are financially prepared to handle any potential errors that may occur.

Claims investigation
Professional liability insurance policies often include provisions for claims investigation. Insurers may conduct investigations to determine the validity of the claim and assess the potential liability, which can be helpful in resolving disputes and reaching fair settlements.

Peace of mind
Knowing that you have professional liability insurance can provide peace of mind as you perform your professional duties. It allows you to focus on your work without the constant worry of potential legal claims, knowing that you have financial protection in place.

It's important to note that professional liability insurance has its limitations, and coverage may vary depending on the specific policy and the insurer. It's a top priority to review the terms and conditions of your policy carefully to ensure it adequately covers the risks and liabilities associated with your profession. Additionally, be aware that professional liability insurance does not typically cover intentional wrongdoing, criminal acts, or general business risks unrelated to professional services.  

Choosing the best professional liability insurance for your business

Choosing the right professional liability insurance for your business requires careful consideration and a thorough assessment of your specific needs and risks. Here are some steps to help you make an informed decision:

Educate yourself
You know your business, the ins and outs of it. Take time to speak with a knowledgeable insurance provider, like Hiscox, to identify a policy that is unique to your business.   

Coverage limits, exclusions, and limitations
Make sure that the coverage limits – the amount the insurance carrier will pay if you have a claim - are sufficient to protect your business and personal assets in the event of a significant claim. Review the policy's exclusions and limitations carefully to be sure you understand what is not covered.

Customized policies
Some insurance providers offer policies designed specifically for certain professions. These policies may address unique risks and requirements relevant to your field, so you’re getting the coverage you need for your business, and not paying for what you don’t need.

Legal and regulatory requirements
Be aware of any legal or regulatory requirements for professional liability insurance in your industry or location. Some professions may have mandatory insurance requirements.

Claims handling process
Understand the insurer's claims handling process and their responsiveness in settling claims. A smooth and efficient claims process is crucial if you ever need to use your insurance. Check the reviews to see how customers feel about their claims experience. 

Remember that professional liability insurance is an essential investment to protect your business and professional reputation. Take the time to understand your options, read policy documents carefully, and ask questions to ensure you make an informed decision that best suits your needs.

If you’re ready to get a quote for professional liability insurance for your small business, Hiscox is here to help. Safeguard your business today.
 

Frequently asked questions:

Are there industry-specific professional liability insurance policies?

Most professional liability insurance policies include similar coverage, but some companies, like Hiscox, will customize a policy based on the specific risks you face in your industry.

Do independent contractors or freelancers need professional liability insurance?

Independent contractors and freelancers can greatly benefit from professional liability insurance. Even though they may not be part of a larger company or organization, they are still exposed to potential risks and liabilities associated with the services they provide to clients. Freelancers and independent contractors often don’t have the resources to pay for defense costs or a settlement, making insurance coverage even more critical for these types of professionals.

Can professional liability insurance protect me against data breaches or cyber liability claims?

Professional liability insurance typically does not cover data breaches or cyber liability claims. Professional liability insurance, also known as errors and omissions (E&O) insurance, is primarily designed to protect professionals from claims related to errors, mistakes, omissions, or negligence in their professional services, advice, or expertise.

Data breaches and cyber liability claims fall under the domain of cyber insurance. This is a separate and specialized type of insurance that specifically addresses the financial and legal consequences of data breaches, cyberattacks, and other cyber-related incidents.