Professional liability insurance (PLI) protects professionals such as accountants, lawyers, and physicians against negligence and other claims initiated by their clients. Professionals with expertise in a specific area require this type of insurance because general liability insurance policies do not offer protection against claims arising from negligence, malpractice, mistakes, or misrepresentation.
How Professional Liability Insurance Works
Depending on the type of business, professional liability insurance may have different names, such as medical malpractice insurance for the medical profession or errors and omissions insurance for real estate agents. Professional liability insurance is a specialty coverage not provided under homeowners’ endorsements, in-home business policies, or business owners’ policies.
Professional liability insurance policies are usually claims-made, which means coverage is good only for claims made and events occurring while the policy is active. You might also find occurrence policies, which means you’re covered if an incident occurred while you had coverage—even if you let your policy expire and a client files a claim against you after it expired. However, occurrence policies are rare in this field.
Typical professional liability policies will indemnify the insured against loss arising from any claim or claims made during the policy period because of any covered error, omission, or negligent act committed in the conduct of the insured’s professional business during the policy period.
What Is Included in Professional Liability Insurance?
Coverage does not include criminal prosecution, nor all forms of legal liability under civil law—only those listed in the policy.
Examples of liabilities not covered by PLI are:
- Employee injuries
- Employee discrimination lawsuits
- Vehicle business use
- Bodily injury
- Business property damage
- Customer injuries or damages
Examples of liabilities covered by PLI are:
- Mistakes, errors, and oversights in services provided
- Undelivered services
- Missed deadlines
- Negligence or failure to meet standards
- Breach of contract
- Defense costs
- Copyright infringement
- determined to have been negligent and not simply an error or omission. If you wanted all five types of incidents to be covered, the clause might need to read “negligent acts, negligent errors, negligent omissions, errors, or omissions.”
Key Features of Professional Liability Policies
Professional liability policies come with several key features that distinguish them from other types of insurance coverage.
Most professional liability policies operate on a claims-made basis, meaning that coverage is triggered when a claim is made against the insured during the policy period, regardless of when the alleged error or omission occurred. This is in contrast to occurrence-based policies, where coverage is triggered based on when the incident resulting in the claim took place.
Professional liability policies often feature shrinking limits, which means that the insurer’s payment of defense costs reduces the available policy limits. Shrinking limits contrast to CGL insurance, where defense costs do not typically reduce policy limits. Professional liability policies may have a single limit that includes both indemnity and defense costs. As a result, insureds may need to purchase higher professional liability limits to ensure adequate coverage for both defense costs and potential settlements or judgments.
How Much Does Professional Liability Insurance Cost?
How much you pay for this type of insurance will depend on the type of business you are in, as some industries are riskier than others. Additional factors include the geographic area you practice in; how many years you have been in business; the number of claims you’ve had against you in the past; and how many employees you have.
Like other types of insurance, coverage limits and deductibles also influence how much you’ll pay. According to insurance provider Insureon, the median cost for its clients’ professional liability insurance is $61 per month (or $735 annually), with most policies costing between $600 and $1,200 per year.
Policy liability limits allso vary significantly, typicallly ranging from $250,000 to $2 million or more. Many policies include limits of $1 million for a single claim (“per occurance”) and a $1 million “aggregate limit” that laststhe lifetime of the policy.
Who Needs Professional Liability Insurance?
If you work for a company that offers services, the company should have PLI, and your services should be covered under its policy. However, if you’re a small business owner or solo practitioner providing professional services or contracting your services to other businesses, you should consider purchasing this type of insurance. IPLI is also encouraged if you offer advice to clients. You may also be legally required to have coverage to work in your field.
Some examples of professionals who need this insurance are:
- Consultants
- Engineers
- Insurance agents
- Real estate agents
- Brokers
- Architects
- Accountants
- Information technology professionals
- Counselors
- Doctors and dentists
- Financial advisors