What is Professional Liability Insurance?
By definition, professional liability insurance is a classification of general business insurance that protects professionals and companies against negligence claims from customers and clients. It also extends to personal injury, infringement of copyright, cyber liability and much more. Sometimes it is also referenced by the term errors and omissions (e&o) insurance.
The claims covered by such policies can include many damages beyond what you can reasonably foresee.
Why Do I Need Professional Liability Insurance?
Consider investing in professional liability insurance in the event that your business offers professional services, consulting services for clients, or contract-based services for clients. Certain types of contracts, as well as jobs, demand professional liability insurance.
Even when your business has done no wrongdoing, there is always a chance that a client can sue if they believe you are in error. Without this valuable coverage, you'll be forced to pay high-cost legal defense completely out of pocket.
Several of the most common professions and businesses that require PLI include:
- Financial advisors
- Insurance agents and brokers
- Software developers
Furthermore, those working in the medical industry may be legally required to be in possession of insurance for medical malpractice. This type of PLI is designed to specifically protect psychologists, physicians, and dentists against claims that their errors led to patient injury or death.
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What Does Professional Liability Insurance Cover?
A significant number of insurance companies will compose policies related to professional liability on a claim-by-claim basis with an extended reporting period as well as a retroactive date.
The retroactive date indicates incidents you are covered for that happen on or after a specific date written in the policy.
Additionally, the extended reporting period helps to cover claims after the date of the policy's expiration. Generally speaking, this encompasses a period of anywhere between 30 to 60 days, but it can be extended up to a year or even longer for an added fee.
Your insurance organization will only cover the claims made against your business over the period of time agreed to in the policy, as noted by the extended reporting period. This claim has to come from a covered omission or error that took place after the retroactive date.
As such, professional liability insurance will take care of damages, costs for legal defense, disciplinary proceedings, lost earnings, and subpoena assistance.
Certain policies can be written on what is known as an occurrence, meaning there is coverage for losses taking place during the policy period, including when the claim is reported after expiration.
How much does Professional Liability Insurance cost?
Professional liability insurance costs are unique to every business. However, the key variables that determine the final price include
- Business type
- Details of the policy, such as coverage limits
- History of claims
- Size of the business, including employees and clients
- Years of operation
When you're shopping around for a quote, it's important to keep several business documents available, including:
- Employee training programs
- Prior errors and omissions coverage
- Processes for quality control
Risk levels will always vary between the different professionals, and this extends to the impact of the error. Insurers will take such variables into account to determine the proper rate. This is the reason that PLI for engineers is often more expensive than fitness trainers, for instance.
Coverage limits can reach into the multi-millions of dollars. Of course, the higher the limits are, the more expensive the premium will be. Lower deductibles also result in higher premiums.
When you consider limits of coverage, you should be taking steps to balance annual policy expenses with potential costs in the event a client decides to sue. You will need enough resources from the coverage to pay off any outstanding damages.
Premiums will also be higher when you work in locations with higher legal fees and claim rates.
The more employees there are, the more the probability that one of them will have made an error that can result in a lawsuit.
Startups should expect significantly higher premiums than companies that are more established. As your business grows, however, your insurance expenses should go down, as long as your claims history is clean. Remember, any company that has a visible track record of previous claims is a red flag in the eyes of an insurance company. When it comes to insurance, these red flags will always equate to higher premiums.
Use G&G Insurance to compare rates. For the best prices, get a quote or call us today.
What else is covered under Professional Liability Insurance?
Several of the more specific elements covered by PLI include work oversights and mistakes, undelivered products or services, and a failure to meet particular deadlines.
Often, even the smallest mistake can cause a client to lose significant amounts of money. When they pursue legal action against your business, you'll turn to insurance to protect yourself.
In the event that your small business over promises on service and subsequently fails to deliver, clients also have grounds to sue. This is especially true when their bottom line is negatively impacted.
Negligence extends well beyond undelivered services to include missed deadlines. If you, as a professional business, fail to turn over a deliverable by a certain date, it can also pose dire consequences for a client. Late work is also grounds to pursue legal action.
What is not covered by Professional Liability Insurance?
Keep in mind that while professional liability insurance protects against a large array of claims, it doesn't cover everything that could potentially happen.
For instance, for damages to any property, you'll need to acquire general liability insurance.
Furthermore, if your employees grow ill or get hurt while working, your business will need to acquire workers' compensation insurance to help them return to their job.
Lastly, data breaches are incredibly common, and in the event your company suffers losses of personally identifiable information (PII), data breach insurance is meant to solve this problem.
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