Professional Liability Insurance

Operate Your Business With Confidence

You can be an expert in your field and the best business owner out there, but mistakes can happen. In a general sense, this means that depending on the kind of error that’s made, this could lead to your clients suddenly incurring costs as a result of your work.

With professional liability insurance, you will likely have some built-in protection against lawsuits filed by dissatisfied clients. Human error happens – and this kind of coverage can help when it does.

What is Professional Liability Insurance?

Professional liability insurance is designed to provide coverage if your client claims that your professional services resulted in avoidable damages. For example, if your customer sues your business for mistakes related to your services, your policy may cover any associated costs that you might be ordered to pay as a result of those damages, usually including legal fees.

And regardless of whether or not you make mistakes, there's a good chance you'll get sued; 90% of businesses end up with a court case at some point in their life span. That's a pretty big percentage, right? A customer doesn't need a good reason to sue you. You could deliver what in your mind is your best work, but they may still find an issue.

Here are some examples of trades that could benefit from professional liability coverage:

Inside Insurance Tip: Professional Liability (PL) insurance and Errors & Omission (E&O) insurance are sometimes used interchangeably. Both can generally protect you from claims related to mistakes or negligence, but coverages can differ depending on your carrier, so it can be useful to speak with a licensed insurance agent to understand.

Got questions about business insurance terms? Check out our helpful glossary.

Is Errors and Omissions Insurance different?

The term “professional liability insurance” is often referred to as “errors and omissions (E&O)” insurance, and vice versa. Depending on what type of business you’re in, you may hear it called one or the other.

For example, with businesses that provide a service, such as an esthetician or photographer, this coverage is usually referred to as “professional liability insurance.”

On the other hand, businesses that provide more guidance-based services, such as accountants and business consultants, often refer to this coverage as “errors and omissions (E&O) insurance.”

As with many types of insurance, the specifics of the coverage may vary among policies.

What does Professional Liability Insurance cover?

Professional liability insurance is designed to provide coverage if your client claims that your professional services were performed negligently. If your customer sues your business for mistakes related to your services, your PL policy may cover any damages and legal costs that you might be ordered to pay as a result of that negligence. It can also cover damages and legal costs for other events covered by your policy.

Even if you’ve done nothing wrong, a client could still sue you. Your professional liability insurance could help cover the legal costs to defend yourself.

Inside Insurance Tip: In terms of professional services, negligence is when a hired professional fails to use reasonable care when providing their services and that failure results in damage or injury to a client. Looking for definitions of other insurance terms? Check out our helpful glossary.

Professional liability insurance typically covers:

• Negligence or alleged negligence
• Legal defense costs
• Claims involving libel and/or slander
• Claims and damages
• And more

Professional liability insurance doesn't cover:

• Bodily injury to a third party
• Cost of damaged equipment
• Medical costs of injuries to third parties
• Intentional mistakes or negligence

You may need professional liability coverage if you’re in the business of giving advice. Business professional liability insurance provides coverage if your client claims that your professional services resulted in negligence.

If your customer sues your business for mistakes related to your services, your PL policy may cover any damages and legal costs that you might be ordered to pay as a result of that negligence.

Professional liability insurance can also protect your business when you’ve done nothing wrong. Even if you’re found to be not negligent, you could end up paying a lot of money to attorneys – a potentially crippling sum. Professional liability insurance can help cover those costs as well.

• How Does Professional Liability Insurance Work?

  Let's look at a few examples. A real estate agent is showing clients a home. The real estate agent forgets to mention that the basement is prone to flooding, especially during the winter months. The new homeowners are furious to learn about the potential flooding problem after buying the home, so they decide to sue the agent.

  The real estate agent’s professional liability insurance policy can help cover the costs associated with the lawsuit and any damages.

  Professional liability insurance can also cover for mistakes you made before the policy was in place. Say the homeowners didn’t sue the real estate agent until a few years after they bought the house. As long as there was no exclusion on the policy for occurrences prior to the policy being written, the real estate agent’s policy could provide financial protection.

• Is Professional Liability Insurance Required by Law?

  Some professionals may be required to have insurance in order to be licensed in their state. Even where it’s not required by law, it’s strongly recommended for business owners who provide advice and services (such as accountants, lawyers, appraisers, etc.). You may also find that clients and vendors may require you to have a professional liability policy before they agree to hire you.

  Having this type of coverage also can help you establish credibility with customers who want to feel assured that they’re protected in case something goes wrong, regardless of whether or not they're legally required to hire companies that are insured.

• Is It Tax Deductible?

  Your professional liability premiums are tax deductible. The IRS considers your policy premiums allowable business expenses, which are deductible. However, you should ask for advice from a tax preparer or an accountant if you want to learn more about deducting your premiums on your business’s income taxes.

• Is Professional Liability Insurance Based on Payroll?

  This coverage can cover not only you, but your employees, as well, for any errors and omissions they might cause. Because of that, the number of employees you have may affect how much you pay for your professional liability insurance coverage.

*Monthly payment calculations (i) do not include initial premium down payment and (ii) may vary by state, insurance provider, and nature of your business. Averages based on January - March 2023 data of 10% of our total policies sold.

This content is intended to be used for informational purposes only. It is not intended to provide legal, tax, accounting, investment, or any other form of professional advice.