Understanding Professional Liability Insurance: Costs and Coverage Explained

What is Professional Liability Insurance?

Professional Liability Insurance (PLI) is designed to protect professionals like lawyers, doctors, accountants, and others from claims made by clients for issues such as negligence, misrepresentation, or malpractice. Unlike general liability insurance, which covers broader risks, PLI specifically addresses the unique risks associated with professional services. This specialized insurance ensures that professionals are covered for claims related to their specific expertise and professional conduct.

How Professional Liability Insurance Works

Professional liability insurance can have various names depending on the profession. For instance, it is known as medical malpractice insurance for healthcare professionals and errors and omissions insurance for real estate agents. This type of insurance is a specialized form of coverage and is not included in homeowners' policies, in-home business policies, or standard business owners' policies.

Professional liability insurance is usually offered on a claims-made basis, meaning it covers only those claims and incidents that occur while the policy is active. Alternatively, some policies are occurrence-based, providing coverage for incidents that happened during the policy period, even if the policy has expired when a claim is made. However, occurrence-based policies are less common in this type of insurance.

Standard professional liability insurance policies offer protection against losses from claims made during the policy period for any covered errors, omissions, or negligent acts related to the insured's professional services during that time.

What Is Included in Professional Liability Insurance

Professional liability insurance does not cover criminal prosecution or every type of civil liability—only those specifically outlined in the policy.

Here are some typical scenarios that this insurance generally addresses:

Service Mistakes: Errors or omissions in the services provided, such as incorrect advice or faulty work.

Uncompleted Services: Situations where services promised to a client were not delivered as agreed.

Missed Deadlines: Failure to meet agreed-upon deadlines, which can lead to claims of negligence.

Professional Negligence: Claims arising from not meeting the professional standards expected in your field.

Contract Violations:  Claims arising from not meeting the obligations outlined in a contract.

Defense Costs: Expenses incurred while defending against claims or legal actions.

Intellectual Property Claims: Coverage for claims related to alleged infringement of copyrights, such as unauthorized use of copyrighted material.

What Does Professional Liability Insurance Not Cover?

Professional liability insurance has several key exclusions that are important to understand:

Bodily Injury or Property Damage: This insurance does not cover accidental injuries or property damage to others, such as a client getting injured in your store. General liability insurance is needed for this type of coverage.

Client Information or Data: If you need protection against cyber threats like data breaches or cyber extortion, cyber liability insurance is required, as professional liability insurance does not cover these risks.

Employment Practices: Issues related to employee rights, such as wrongful termination or harassment claims, are not covered under professional liability insurance. Employment practices liability insurance is necessary for these matters.

Employee Illnesses and Injuries: Injuries or illnesses that your employees experience while working are covered by workers' compensation insurance, not professional liability insurance.

Intentional or Dishonest Acts: Professional liability insurance does not cover losses resulting from illegal activities or intentional misconduct.

Intellectual Property Issues: If you are sued for using patents or trade secrets without permission, professional liability insurance generally does not cover these claims. Some coverage might be available under a general liability policy.

Coverage exclusions can vary by profession. For example, a contractor's professional liability insurance might exclude coverage for physical injuries, whereas a medical professional liability policy would cover injury claims related to their practice.

How Much Does Professional Liability Insurance Cost?

The cost of professional liability insurance varies based on several factors, including your industry, location, years in business, and claims history. More risky professions or those in high-cost areas typically pay higher premiums. Other factors like the number of employees and the coverage limits you choose will also impact the cost.

Typically, professional liability insurance costs about $61 each month, or roughly $735 per year, as reported by Insureon. Generally, policies range between 600 USD and 1,200 USD annually.

Coverage limits for professional liability insurance can differ widely, generally ranging from $250,000 to over $2 million. Many policies offer a $1 million limit per claim and a 1 million USD aggregate limit, which covers claims over the policy's lifetime.

Bottom Line

Professional liability insurance is essential for protecting against claims related to professional services, with costs varying based on industry risk, location, and other factors. On average, you can expect to pay around $735 annually, with coverage limits typically ranging from $250,000 to over $2 million. Tailoring your policy to fit your specific needs and risks will ensure you have the appropriate protection and peace of mind for your business.

FAQs

Q What do professional liability policies provide coverage for?

A. Personal liability insurance covers damages or injuries to others on your personal property. Professional liability insurance covers you if claims are filed against you for professional negligence, errors, omissions, or other issues that can arise if you provide professional services for a living.

Q. What is professional liability claims made coverage?

A. What is a claims-made policy? A claims-made policy covers you for any covered claim provided it meets two criteria: You are insured when the claim is made. If you no longer need coverage, you can purchase a “tail” to protect you for the past.

Q. What is professional liability insurance also known as?

A. Professional Liability Insurance (PLI), is also known as Professional Indemnity Insurance (PII) or as Errors & Omissions (E&O). This is a liability insurance cover that protects individuals from professional risks and related legal expenses.

Q. What is general liability coverage vs professional liability?

A. Only general liability insurance can spare your business from lawsuits over a visitor slipping and falling on your commercial property. And only professional liability insurance can shield you from the high cost of alleged professional mistakes that cause a third party financial losses.

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