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Guide to Professional Liability Insurance for Small Businesses

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Everyone would love to believe that they’re immune to making mistakes. But, unfortunately, mistakes are inevitable—no matter how good you are at what you do. If those mistakes could lead to serious financial damages, however, it might be time to look into professional liability insurance. 

What is professional liability insurance?

Professional liability insurance provides coverage for any damages due to claims of negligence or misconduct. In other words: If you make a mistake—or are perceived to have made a mistake—and your client suffers a loss as a result and sues you for it, your professional liability insurance policy will shield you from those costs. It’s also often called “errors and omissions insurance.”

How does professional liability insurance work?

Professional liability insurance is typically a claims-made insurance policy. That means the policy covers claims made during the coverage period—even if the event occurred in the past. Claims-made policies usually include: 

  • A retroactive date: This is the date the policy coverage begins, and it can be in the past. If, for example, you call an insurer on September 1 to get a policy, you could set the retroactive date to be the previous January 1.
  • An extended reporting period: This is a date in the future, after the end of your policy, during which claims will still be covered. This means that if your policy expires on January 1, but you have extended reporting for six months, claims made on March 15 would still be covered. 

Professional liability insurance covers the costs of damages, legal defense, loss of earnings, and defense costs from:

  • Negligence 
  • Libel/public slander
  • Inaccurate advice
  • Copyright infringement
  • Misrepresentation 

Professional liability insurance does not cover: 

  • Lawsuits filed by employees. Including sexual harassment, workplace harassment, and wrongful termination. Those require employee practices liability insurance (EPLI).
  • Bodily injury to a client. If a client or customer is injured on your property, your general liability insurance should cover the costs. 
  • Property damage. Property damage is covered by property liability, general liability, or commercial property insurance.
  • Medical bills. Apart from medical malpractice, which can be covered by certain types of professional liability insurance.

Who needs professional liability insurance?

Any company that provides services could need professional liability insurance at some point—because people naturally make mistakes. But certain types of businesses are especially vulnerable to the types of events professional liability insurance covers, including (but not limited to): 

  • Lawyers 
  • Doctors
  • Real estate agents
  • Architects
  • Interior designers
  • Consultants 

Generally, if your business provides a service to clients and any mistakes you make could cause a loss for those clients, it’s a good idea to have professional liability insurance.

While professional liability insurance isn’t legally required, it’s highly recommended for high-risk businesses. For example, 26 states require that lawyers who don’t have professional liability insurance inform their clients before starting their cases. In other situations, clients will require that contractors carry professional liability coverage before starting a contract.

How to get professional liability insurance

If you already have other types of business insurance and you need professional liability coverage, try your current insurance company first and see if they can cover you. If not, your best bet is to shop around with a few different insurance companies and see who gives you the best rate for a policy that meets your needs.

Professional liability insurance FAQ

What is the difference between personal and professional liability insurance?

Personal liability insurance covers any liability for incidents that occur in your home, while professional liability insurance covers damages as a result of mistakes you’ve made at work that affect your clients in a negative way.

What does a professional liability policy cover?

Professional liability insurance covers Negligence Libel/public slander iInaccurate advice Misrepresentation

Do you need both general and professional liability insurance?

Whether or not you need both general and professional liability insurance depends on the type of business you run. Most businesses need general liability insurance, because it protects them from liability from the most common business risks. But if your company is one that provides direct services to a customer that could lead to a loss on their part if you make a mistake, then professional liability insurance is a good idea as well.

What is the difference between general and professional liability insurance?

General liability insurance protects you in the case of common risks, like a customer getting hurt on your property. Professional liability insurance protects you if you make a mistake that leads to a loss on the part of your client.

What is the difference between professional liability and malpractice insurance?

Malpractice insurance is a type of professional liability insurance. It is specifically for those in the medical field.

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