What Is Professional Liability Insurance? Costs and Coverage
Professional liability insurance (PLI) covers professionals such as accountants, lawyers, and physicians from claims of negligence and other wrongdoing brought by their clients. Because general liability insurance policies do not provide protection against claims arising from negligence, malpractice, mistakes, or misrepresentation, professionals with expertise in a specific area require this type of insurance.
How Professional Liability Insurance Works
Professional liability insurance may go by several titles depending on the profession, such as medical malpractice insurance for doctors or errors and omissions insurance for real estate agents. Professional liability insurance is a specialized coverage that is not available through homeowners' endorsements, in-home business policies, or business owners' policies.
Professional liability insurance policies are typically claims-made, which implies that coverage is only available for claims made and incidents that occur while the policy is in effect. You may also come across occurrence policies, which indicate you're insured if an incident happened while you were covered—even if you let your insurance lapse and a client files a claim against you after it expired. However, such policies are uncommon.
Typical professional liability policies will indemnify the insured against loss arising from any claim or claims made during the policy period as a result of any covered error, omission, or negligent act committed during the policy period in the conduct of the insured's business as a professional.
What Is Included in Professional Liability Insurance?
Coverage does not encompass criminal prosecution or all forms of civil legal liability, just those specified in the policy.
PLI does not cover the following liabilities:
- Employee injuries
- Employee discrimination lawsuits
- Vehicle business use
- Bodily injury
- Business property damage
- Customer injuries or damages
PLI covers the following liabilities:
- 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 plans vary in wording between providers. Some may be expressed in ways that make comparison easier, while others may differ sufficiently that what looks to be the same coverage isn't.
Non-lawyers may be confused by wording with significant legal differences. Consider the following two phrases:
- Negligent act, error or omission
- Negligent act, negligent error, or negligent omission
Coverage for "negligent act, error, or omission" compensates the policyholder for losses/circumstances sustained solely as a result of a professional error or omission or a negligent act. Because of the phrasing, a negligent error or omission would not be covered.
The "negligent act, negligent error, or negligent omission" clause differs from the prior clause in its interpretation. To be covered, an error or omission must be determined to be negligent rather than simply an error or omission. If you wanted to cover all five sorts of situations, the phrase could say "negligent acts, negligent errors, negligent omissions, errors, or omissions."
How Much Does Professional Liability Insurance Cost?
The cost of this sort of insurance is determined by the area in which you practice, the field in which you work, and the number of claims made against you. Other factors that may influence the cost of your policy include the number of employees you have and the number of years you've been in business.
Coverage limitations and deductibles, like other types of insurance, impact how much you'll spend. According to Insureon, the average monthly cost for professional liability insurance is $59, with most policies costing between $500 and $1,000 per year.
Who Needs Professional Liability Insurance?
If you work for a service company, the company should have PLI and your services should be protected under its policy. However, if you own a small business that provides professional services or contracts with other businesses, you should think about getting this type of insurance. Professionals who require this insurance include:
- Consultants
- Engineers
- Insurance agents
- Real estate agents
- Brokers
- Architects
- Accountants
- Financial advisors
The Bottom Line
Professional liability insurance protects small business experts such as doctors, lawyers, accountants, and architects from professional blunders. It is necessary coverage since mistakes happen no matter how diligent or experienced a professional is.
PLI costs between $500 and $1,000 each year, making it less expensive than paying for a lawyer, court charges, and other related expenses. If you own a small business, you should consult with an insurance professional to establish whether you need coverage and how much you should obtain.