Professional Liability Insurance Cost: How to Avoid Sticker Shock

As a professional, you come across a lot of different price tags. As a business owner, it's your responsibility to try to make the smartest decision for your finances.

It's only natural that while shopping for protection for your business, you may ask, "How much will professional liability insurance cost?"

In this article, we'll review how much small business insurance typically costs, depending on your business type and your location, what it usually covers, and how it can benefit your business. By the time you've finished reading, you'll feel more empowered to make an informed decision for your business

10 Factors That Affect Your Professional Liability Insurance Cost

1. The industry you work in.

Because what you do is unique to you and your profession, that means you face different challenges and risks than other business owners.

For example, a real estate agent faces different challenges than a hair stylist; an accountant faces different challenges than a yoga instructor.

Insurance carriers consider the risks that you may be exposed to in your industry when they’re calculating your professional liability cost.

2. The services you provide.

Although you may hold the same title as another professional, you may perform different services. For example, if you're an interior designer, you may work only with individuals, while another interior designer may work exclusively alongside building managers.

Within a profession, some services offered may carry more risk than others. Insurance carriers may ask you about specific services you offer to clients so they can assess your risk and factor those risks into the cost of your premium.

3. Where your business is.

As business owners, we know that our communities are important to our success — but our locations are what's interesting to insurance carriers when quoting business insurance cost.

Certain areas may have different insurance regulations, depending on local and state governance, and insurance carriers will take that into account when calculating your professional liability insurance cost.

4. What your payroll looks like.

Once you have employees, you may have extra sets of hands to help you with your workload, but those extra hands can mean extra assumed risk.

With more people working at your business, there's a greater chance for human error. The more people you have working for your business, there’s a higher risk that someone will either inadvertently make a mistake or could be accused of doing so.

Insurance carriers know this, so if you have employees, it's likely your premium will be higher than if you were working solo.

5. The risks you face.

This factor is closely related to the factor we covered in the second item above. Depending on the risks that you face in your business, your professional liability cost could vary.

For example, a real estate agent may face the risk of a customer selling if they find out there were improvements they'd have to financially cover themselves, which hadn't been divulged upfront.

Say a business consultant predicted that their client would earn a certain amount of revenue if they invested in a particular business venture. The client followed the consultant’s advice, but never earned the money that was promised, resulting in the client suing for breach of promise.

Claims of negligence or other losses related to the services you provide are very real risks that insurance companies will typically consider when deciding your business insurance cost.

6. The number of clients you have.

We mentioned that having more employees means more room for human error, and regardless of whether you have employees or work solo, more clients mean there's more room for interpretation of error.

Many people assume that a client making a claim means that a mistake was made — but that's not always the case. It doesn't take much for a client to make a claim, and even if you're not found to be at fault , you'll likely still have to cover legal costs.

Consequently, some insurance carriers will inquire about how many clients you currently have when considering your professional liability policy cost.

7. Your claim history.

Insurance carriers typically use the past to inform how they assess risk in the future. Many carriers will ask whether or not you've had any claims made against you. It is sometimes inferred that if a client filed a claim against your business in the past, it's more likely to happen again in the future than if a claim hadn’t been filed against you previously.

Note: You may have a history of claims and be tempted to lie to an insurance carrier, in hopes of getting a lower price for the premiums. Don't do it. Being dishonest about your history with past clients can put your policy in jeopardy. Additionally, states have fraud warnings that you’ll typically have to agree to in order to purchase a policy. Therefore, it’s important to answer questions truthfully.

If it's discovered you weren’t honest about your claim history, many carriers will consider your policy void or cancelled (though this, of course, differs with different carriers). Either way, it's best to be honest to get the most thorough and comprehensive coverage possible for your business.

8. What other carriers are charging.

Many insurance carriers stay up-to-date on the market when considering their policy costs. This is one factor that you have less control over.

What insurance carriers are offering their customers will be considered, as many companies will try to offer the most comprehensive coverage for the more attractive price for their customers.

That’s why it's important to compare quotes and to see which carriers are offering the best pricing.

9. Your professional liability insurance policy limit.

When you choose a professional liability insurance policy, you'll decide to get coverage that protects you up to a specific amount. There are typically two types of policies available to you:

Per-occurrence limit: This type of policy limit can cover you, up to a specific dollar amount per claim, or occurrence. For example, if your per-occurrence limit is $250,000, your insurance will cover up to $250,000 per claim.

Aggregate limit: This type of policy limit covers you up to a specific amount of money for the duration of your coverage. For example, if you have a policy with an aggregate that covers up to $1 million, your insurance can cover you for up to $1 million for all your claims in a year.

Typical aggregate limits can be either $1 million or $2 million, but when it comes to the cost of your monthly or annual premiums, you may not see a big difference in price between aggregate limits.

When comparing quote options, feel free to explore the differences in price for policies with certain aggregate limits. It may be worth paying a bit more for the higher aggregate, depending on your circumstances and assumed risks.

10. Your deductible.

You may be able to choose your own deductible amount for your professional liability coverage, similarly to how you'd choose one for your auto insurance.

Some insurers may have a $0 deductible, meaning that if you make a claim, your business won't have to pay any money before the policy pays for the amount of the claim.

Make sure to do your research, though — sometimes policies with $0 or a low deductible, means you may pay a higher premium rate. Before making your decision, ask your insurance provider to review the difference in prices among your options.

Should I Choose a Policy Based on Professional Liability Cost?

What you choose to prioritize when choosing a small business insurance policy is completely up to you. While some business owners may want to weigh policy cost, others may find the cost of a premium worth the specific coverage a policy provides their business.

As we've discussed earlier, a lot of factors go into your business insurance cost, so it's a good idea to understand your options.

You can use our free quote comparison tool to see what coverage options are available and what they may cost your business. Simply Business's professional liability quotes can start as low as $30/month.*

Can You Put a Price on Protection?

At this point, you now know of 10 factors that typically go into determining your professional liability insurance cost. And sure, insurance may just be one line item on a long list of things you have to budget for, but ask yourself, ”How does the cost of an insurance premium compare with hefty claims and legal costs?”

At the end of the day, many business owners consider their business insurance cost worth the protection their policy offers.

You started a business to succeed doing what you love. Don't let a policy premium deter you. Instead, let insurance carriers worry about what could go wrong, while you focus on what will go right!

* 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 - December 2020 data of 10% of our total policies sold.