Malpractice Insurance: What Is Professional Liability Insurance?

Fran Majidi
February 27, 2020

What happens if you’re an accountant and your client gets in trouble for money-laundering when it was really you who was remiss in declaring their finances properly? What if you’re a lawyer and acted negligently regarding your client’s case and that person lost hundreds of thousands of dollars because of it? Doctors are also at risk of being sued for malpractice. What would you do if your patient sued you for making a mistake which that person has to live with for the rest of their life? You’re not an awful person, just human, but you could be liable for losses caused by the work you perform. What can you do to avoid losing everything after making an honest mistake? Professional liability insurance (PLI) is insurance that protects professionals who find themselves in the scenarios listed here. Any professional with expertise in a specific area requires PLI because general liability insurance will not offer protection against claims related to negligence, malpractice, or misrepresentation.

Professional liability insurance has other names, which you may be more familiar hearing: malpractice insurance, medical malpractice insurance and errors & omissions insurance. Insurers may use a different name or write a policy specific to a customer’s industry but they are all essentially the same type of protection. Coverage for PLI is usually only good for claims made during the policy period, but some policies include a retroactive date and are more expensive.

What’s Not Included in a Professional Liability Insurance Policy?

Criminal prosecution is not covered in a professional liability insurance policy. The only things covered are listed in the policy. Usually, they are written in a way that is specific to the type of work you do. It’s important to look at the policy wording because some policies have tighter restrictions because of what’s written in their policy. For instance, if “error or omission” is only listed as “negligent error or omission” you won’t be covered if the loss you caused a client is not determined to be a negligent act.

Consider the risks you pose when you offer a service and make sure all these exposures are addressed in your policy’s wording.

Does My Business Need Professional Liability Insurance?

Everyone is prone to making mistakes, but if you make a living off your area of expertise, you’ll need protection in case an error on your part costs a client time and/or money. If you miss a deadline, do not deliver a service, omit something in your work or give bad advice, you are liable for a lawsuit. Your professional liability insurance policy would cover the costs of fighting the charges and/or paying penalties.

Some clients may even request a certificate of insurance proving that you have coverage. They want to know that if you come up short they will be able to claim losses.

How Much Does Professional Liability Cost?

Not all professional liability insurance policies cost the same. There are several factors that go into determining rates, including the industry and risk factors affecting that industry; the size of your business, coverage limits and deductible and claims history. Most small businesses pay anywhere between $500 and $1,000 a year for a professional liability policy.

How Can I Save on Professional Liability Insurance?

1. Check your policy coverage limits and terms. A retroactive period may cost more. Consider whether you need it or not. Usually, a policy only covers claims filed while the policy is active. A retroactive period would open up coverage to past incidents that fall outside the active-policy period. However, if you opt for the basic coverage without a retroactive period, it will be cheaper but you’ll be restricted in recouping some past losses.

2. Fix your credit now! Your credit may or may not be used to determine your car and home insurance rates but it most likely will be when you shop for professional liability insurance quotes. The stronger your credit score, the lower your rate will be.

3. Choose a higher deductible. You’ll pay less each month and each year when you keep your deductible high, but keep in mind that when you need your insurance to cover you, you’ll have to pay this amount before you get coverage.

4. Cover your bases. Put a quality-control process in place to prevent errors, missing deadlines, and anything that may lower your chances of being sued. Prevention will save you from having to file a claim and will, therefore, keep your rate low.

5. Compare professional liability insurance quotes.

Professions that Need Professional Liability Insurance

  • Insurance agents
  • Real estate agents
  • Tax preparers
  • Accountants
  • IT professionals
  • Engineers
  • Auditors
  • Architects
  • Consultants
  • Doctors
  • Lawyers
  • Psychologists
  • Fitness professionals
  • Beauty technicians
  • Photographers

If I Have General Liability Insurance Do I Need Professional Liability Insurance?

General liability insurance and professional liability insurance cover different types of lawsuits. General liability insurance covers customer bodily injuries, property damage and advertising injuries. Professional Liability Insurance covers the legal defense costs associated with a lawsuit by a customer who suffers a loss due to your services.

General liability insurance is crucial to have if you have a physical office or marketplace that frequently gets visited by customers. It would cover the medical costs of a slip-and-fall accident or if they suffered some other form of physical harm while on the premises. Having this form of protection does not mean that you do not need professional liability insurance, which would pay your expenses if a lawsuit was filed because the services you rendered caused your client to suffer a loss.

These are two very different policies and they serve very different functions. In many cases, a business should have both. Consider your occupation and the risks posed by advice or services you render. Only then can you determine whether or not you need to buy one or both types of insurance.

Get a Free Commercial Insurance Quote.

Related Articles

Commercial Insurance Commercial Auto Insurance for Realtors

Do you do a lot of driving for your real estate business? Do you drive around town showing clients your listings? Commercial auto insurance may be the best insurance choice for you.

Commercial Insurance Commercial Boat Insurance

Commercial boat insurance protects your boat and covers your liability if something goes wrong. How much commercial boat insurance do you need? Let us help you decide.

Looking for Commercial Insurance?

Compare rates from dozens of companies in less than 3 minutes.