Professional liability insurance protects you and your company from claims for damages caused by your mistakes. You may like to believe you are immune to making mistakes. Unfortunately, mistakes are unavoidable, no matter how good you are at what you do. Most of the time, mistakes are simply opportunities to learn and improve. But if potential mistakes might lead to severe financial damages, it would be worth getting professional liability insurance. Here’s all you need to know on how to get professional liability insurance.
Key Takeaways
- Professional liability insurance (PLI) is a policy that protects professionals against financial loss from claims of negligence, mistakes, or bad advice while delivering their services.
- It covers claims like libel, inaccurate advice, misrepresentation, and negligence, but excludes employee lawsuits, bodily injury, and property damage.
- Most PLI policies are “claims-made,” meaning coverage only applies if the claim is made while the policy is active.
- PLI is essential for service providers like consultants, IT professionals, and real estate agents, and typically costs between ₦100,000 and ₦300,000 yearly.
What Is Professional Liability Insurance?
Professional liability insurance is a type of liability insurance designed specifically for individuals and companies who offer professional services. This insurance policy protects professionals against claims that they made a mistake while delivering professional services, resulting in a financial loss to others. Its purpose is to protect the covered professional from financial damage caused by such third-party claims. Professional liability insurance is also referred to as Professional Indemnity Insurance (PI) or Errors and Omissions Insurance (E&O).
How Does Professional Liability Insurance Work?
Professional liability insurance may go by a variety of names depending on the type of business, such as medical malpractice insurance for medical professionals or errors and omissions insurance for real estate agents. Professional liability insurance is a specialty policy that is not included in homeowners’ endorsements, in-home business policies, or business owners’ policies.
Professional liability insurance policies are usually claims-made, which means that coverage is only valid for claims made and incidents that occur while the policy is active. You may also come across occurrence policies, which protect you if an incident occurs while you were covered—even if you let your policy expire and a client makes a claim against you after it expired. However, occurrence policies are uncommon in this field.
Typical professional liability policies will indemnify the insured against damage caused by any claim or claims made during the policy period as a result of any covered error, omission, or negligent act done while conducting the insured’s professional business during the policy period.
Before selecting a PLI provider, it’s essential to ask the right questions to ensure you’re getting coverage that truly protects your business. Use this guide to make an informed decision:
Questions to Ask Before Choosing a PLI Provider.PDF
What Professional Liability Insurance Covers
Professional liability insurance covers the costs of damages, legal defense, loss of earnings, and defense costs from:
- Negligence
- Libel or Public slander
- Inaccurate advice
- Copyright Infringement
- Misrepresentation
Professional liability insurance doesn’t cover:
Lawsuits filed by employees: Employee practices liability insurance (EPLI) is required for situations such as sexual harassment, workplace harassment, and wrongful termination.
Bodily injury of a client: If a client or customer is injured on your property, your general liability insurance should cover the expenses.
Property damage: Property liability, general liability, and commercial property insurance all provide coverage for property damage.
Medical bills: Apart from medical malpractice, which can be covered by certain types of professional liability insurance.
Professional Liability Policy Wording
Professional liability plans are usually worded differently amongst providers. Some may be expressed in ways that make them easier to compare, while others may differ enough to render what appears to be the same coverage not the same.
Wording with significant legal differences can be confusing for non-lawyers. For instance, consider these two phrases:
- Negligent act, error, or omission
- Negligent act, Negligent error, or Negligent omission
Coverage for “negligent act, error, or omission” protects the policyholder from losses or circumstances incurred solely as a result of any professional error, omission, or a negligent act. The wording does not cover Negligent errors or Negligent omissions.
The clause “negligent act, negligent error, or negligent omission” is interpreted differently than the previous clause. To be covered, an error or omission must be proven to be negligent rather than merely an error or omission. If you wanted to include all five types of incidents the clause could say “negligent acts, negligent errors, negligent omissions, errors, or omissions.”
Who Needs Professional Liability Insurance?
If you work for an organisation that provides services, the company should have PLI, and your services should be covered by its policy. However, if you are a small business owner or solo practitioner that provides professional services or contracts with other businesses, you should consider acquiring this form of insurance. PLI is also recommended if you offer advice to clients. You may also be legally required to obtain insurance to work in your field.
Examples of professionals who need this insurance are:
- Consultants
- Engineers
- Insurance agents
- Real Estate Agents
- Brokers
- Architects
- Accountants
- Information Technology Professionals
- Counsellors
- Doctors and Dentists
- Financial Advisors
How Much does Professional Liability Insurance Cost?
The cost of this type of insurance will vary depending on the type of business you operate, as certain industries are riskier than others. Other factors include the geographic area in which you practice, the number of years you have been in business, the number of previous claims against you, and the number of workers you have. Coverage limits and deductibles, like other types of insurance, also determine the amount you pay. On average, professional liability insurance costs between ₦100,000 and ₦300,000 per year.
How Do I Get a Professional Liability Insurance?
If you already have other types of business insurance and need professional liability coverage, contact your current insurance provider first to see if they can assist you. If not, shop around with a few insurance providers to find out who offers the best rate for a policy that suits your needs. You can also check with industry peers and ask for recommendations.
What to Look For in a PLI Policy
Here are some extra points to look into when sourcing a good PLI policy:
#1. Claims reporting basis
A PLI policy may be available on an occurrence or claims-made basis. If the policy is written on an occurrence basis, it means that claims will only be considered for coverage if the event that gave rise to the claim, also known as the occurrence, took place within the policy period. These policies are referred to as ‘long-tail liability’ since claims can be reported at any time, even after the policy period has expired.
If the policy is written on a claims-made basis, it will only cover claims filed within the policy period. The event that led to the claim could have occurred during or before the policy period. If the policy is not renewed or expires, the professional is no longer covered under it.
#2. Policy length
Professional liability insurance policies normally last 12 months.
Some insurers allow you to purchase an annual coverage over many years. With a multi-year purchase, the insurance buyer can lock in the premium price for up to three years, but the insured limit resets annually on the policy anniversary date.
Project-specific policies are also available, which lasts the duration of the project being insured. This type of policy is often purchased for large, high-liability projects. This type of policy has a single liability limit that applies throughout the policy period, even if it is several years.
What’s the Difference Between Personal and Professional Liability Insurance?
Personal liability insurance covers any liability for incidents that occur at home, whereas professional liability insurance covers damages caused by mistakes performed at work that have a negative impact on your clients.
What Does Professional Liability Insurance Cover?
Professional liability insurance covers:
- Negligence
- Libel/public slander
- Inaccurate advice
- Misrepresentation
What’s the Difference Between General and Professional Liability Insurance?
General liability insurance protects you in the event of a common risk, such as a customer being injured on your property. Professional liability insurance protects you if you make a mistake that causes your customer to suffer a loss.
How to Choose a Professional Liability Insurance?
Choosing the right professional liability insurance policy requires taking into account a number of factors, including the type of services you provide, the size of your business, potential damages, and your claims history. It is crucial to determine the specific coverage you need and the policy limits that will effectively protect your assets and reputation.
What does Liability Insurance Cover?
Liability insurance protects against claims arising from bodily harm and/or property damage. Liability insurance covers legal expenses and settlements for which the insured party is held accountable.
The Bottom Line
Professional liability insurance protects small businesses against professional mistakes. It is necessary coverage since mistakes occur regardless of how cautious or skilled a professional is. PLI is less expensive than paying for a lawyer, court fees, and other claims-related expenses. If you own a small business, you should consult an insurance agent to determine how much coverage you need. PLI is only one type of small-business insurance you may need.
Related Article
- Professional Insurance Providers: Our Best Picks for Businesses
- Professional Insurance for Consultants: Why It’s Essential for Your Business
- Media Insurance Coverage: Why I Had to Learn About Media Insurance the Hard Way
- Crisis Management Insurance Coverage: How It Works
References
