• Professional liability insurance is used to protect businesses from negligence claims.
• This insurance is utilized by professionals such as accountants, architects, information technology specialists, physicians, and professionals who contract their services.
• The average annual cost of PLI is between $500 and $1,000, which is significantly less than the cost of a lawyer, court fees, and other related expenses.
The Working Style of Professional Liability Insurance
Professional liability insurance may have different names depending on the profession, such as medical malpractice insurance for medical professionals or errors and omissions insurance for real estate agents. Professional liability insurance is a specialized form of protection that is not included in homeowners' endorsements, in-home business policies, or business owners' policies.
Typically, professional liability insurance policies are claims-made, meaning coverage is limited to claims made and events occurring during the policy's term. You may also find occurrence policies, which cover you if an incident occurred while you were covered, even if you let your policy lapse and a client files a claim against you after the policy has expired. Nevertheless, occurrence policies are uncommon.
Standard professional liability policies indemnify the insured against loss resulting from a claim or claims made during the policy period due to a covered error, omission, or negligent act decided to commit in the conduct of the insured's professional business as during policy period.
What Does Professional Liability Insurance Cover?
Criminal prosecution and all forms of legal liability under civil law are not covered, only those listed in the policy.
The following liabilities are not covered by PLI:
• Workplace injuries
• lawsuits for discrimination against employees
• Vehicle commercial use
• Bodily harm
• Commercial property damage
• Damages or injuries to customers
Cyber liability, data breaches, and other technology-based concerns may not be included in core insurance policies. However, data security and other technology-based security issues are covered by a separate insurance policy.
Examples of risks covered by PLI include:
• Errors as well as omissions in the provision of services
• Missed deadlines
• Negligence or failure to meet standards
• Undelivered services
• Breach of agreement
Wording of Professional Liability Policy
The wording of the professional liability policies varies between providers. Some may be expressed in a manner that facilitates comparison, whereas others may differ sufficiently that what appears to be the same coverage is not.
To non-lawyers, language with significant legal differences may appear confusingly similar. Consider the following two phrases:
• Negligent act, omission, or error
• Negligent act or negligent error, or negligent omission
The coverage for "negligent act, error, or omission" indemnifies the policyholder against losses/circumstances incurred solely as a result of a negligent act or professional error or omission. Due to the wording, negligent errors and omissions would not be covered.
The clause describing "negligent act or negligent error, or negligent omission" is interpreted differently than the preceding clause. For an error or omission to be covered, it must be determined that it was the result of negligence and not merely an oversight. If you desired coverage for all five types of incidents, the clause may need to read "negligent acts, negligent errors, negligent omissions, errors, or omissions."
Before purchasing a policy, you should consult with an attorney who is knowledgeable about professional liability insurance. You do not want to purchase coverage only to discover that a particular incident is not covered due to the provider's policy language.
What is the cost of professional liability insurance?
The amount you pay for this type of insurance will depend on the location in which you practice, the field you're in, and the number of claims made against you. The number of employees you have and the length of time you've been in business may also affect the cost of your insurance policy.
Similar to other types of insurance, coverage limits and deductibles affect the total cost. The majority of professional liability insurance policies cost between $500 and $1,000 per year, according to the insurance provider Insureon.
Who Should Consider Purchasing Professional Liability Insurance?
If you work for a company that provides services, your services should be covered under the company's PLI policy. However, if you are the owner of a small business that provides professional services or subcontracts its services to other businesses, you should consider purchasing this insurance. The following are examples of professionals who require this insurance:
• Architects
• Consultants
• Engineers
• Insurance agents
• Brokers
• Accountants
• Real estate agents
• Financial advisors
Who Needs Professional Liability Insurance Policy?
Professionals and service-providing businesses should obtain a professional liability policy. These policies cover claims made against you and your business for professional errors, mistakes, poor judgments, or service delivery failures.
What Are the Two Primary Categories of Professional Liability Insurance?
Claims-made coverage and occurrence coverage are the two types of professional liability insurance. Claims-made denotes that the policy must have been in effect at the time of the event and lawsuit, whereas occurrence denotes that the policy covers any eligible claim resulting from an incident which occurred or happened while the policy was in effect.
Difference Between Personal and Professional Liability Insurance
Personal liability insurance covers damages or injuries to third parties that occur on your own property. If you provide professional services for a living, professional liability insurance protects you if claims are filed against you for professional negligence, errors, omissions, or other issues that can arise.
The Bottom Line
Professional liability insurance is protection against professional errors for small business professionals such as doctors, lawyers, accountants, and architects. It is essential coverage because mistakes can occur regardless of a professional's care or experience.
PLI costs between $500 and $1,000 annually, making it less expensive than paying for a lawyer, court fees, and other related expenses. If you own a small business, you should consult with an insurance agent to determine if and how much coverage you need.
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