What Is Professional Liability Insurance: Full Guide

All About Errors and Omissions Insurance

When you first ask what professional liability insurance is, you’ll hear a lot of insurance terms that can be confusing. Whether you see the terms errors and omissions insurance, professional indemnity insurance, or malpractice insurance, they all refer to professional liability insurance, also known as PLI insurance, PL insurance, or professional lines insurance.

So, What is Professional Liability Insurance?

The meaning of professional liability insurance can be confusing To put simply, it’s a type of liability insurance designed to protect professionals from errors, omissions, and claims arising while they are performing professional services.

There’s always some level of risk when providing professional services. Professional liability insurance helps protect against financial losses resulting from errors, omissions, or professional negligence, while general liability insurance focuses on bodily injury and property damage.

In this blog, we’ll cover what professional liability insurance is, who needs it, its types, costs, coverage options, and how to protect yourself as a professional from unexpected wrongful acts, along with other key considerations related to professional liability insurance.

What Does Professional Liability Insurance Cover?

Professional liability insurance protects professionals from financial losses arising from claims made while they are performing professional services and is typically issued as a separate policy designed to provide coverage for professionals. Here’s what professional liability insurance coverage includes:

• Negligent acts claims: This coverage protects against financial losses a client might face as a result of an error or omission in your professional services.
• Legal defense costs: Protection against expensive legal defense costs, including attorney and court fees, which some policies cover outside your policy limit.
• Damages/Settlements: Pays for financial compensation granted to the claimant if you’re found legally liable.
• Personal injury claims: Covers claims of defamation, slander, or libel that occur during professional practice.
• Copyright infringement: Protection against lawsuits caused by the accidental use of copyrighted content.
• Loss of income: Certain policies may offer a daily stipend to compensate for time spent in court during your defense.

Optional Add-Ons to a Professional Liability Insurance Policy

You can add these optional coverages to your basic professional liability insurance policy because some insurance providers don’t include them.

• Cyber liability insurance: Coverage for losses and costs related to cybersecurity, such as data breaches, privacy problems, and system security failures, that a standard PLI policy often doesn’t cover.
• Commercial general liability: Protects against third-party bodily injury or property damage claims arising from your business operations, like off-site damage or client slip-and-fall.
• Employment practices liability: Covers claims made by employees for wrongful dismissal, discrimination, or harassment.
• Commercial property insurance: Protects your business assets, equipment, and buildings against damage or loss.

Key Terms Found in a Professional Liability Insurance Policy

Wording in professional liability insurance is critical. When you purchase a professional liability policy, be aware of the terms used in your policy because some terms can change your coverage completely and affect how liability insurance for professional services responds to a claim. Coverage wording may appear similar, but it is legally significant. Non-lawyers often overlook the policy’s terms. Take these two phrases as an example:

Negligent act, error, or omission

Policies that cover “negligent act, error, or omission” are designed to protect against losses caused by professional mistakes. However, depending on how the policy is written, certain negligent errors or omissions may not be covered.

Negligent act, negligent error, or negligent omission

This type of coverage includes only negligent mistakes, showing how important policy wording is. For your policy to be all-inclusive of errors and omissions that are not negligent, the clause should clearly include “negligent acts, negligent errors, negligent omissions, errors, or omissions.”

Remember: Hire a lawyer or insurance broker who is familiar with policy wording to review your professional liability coverage, so your claims aren’t denied because of incorrect phrasing.

Who Needs Professional Liability Insurance

Anyone who may face legal action as a result of an alleged error while performing professional services needs professional liability insurance. Professionals who provide expert advice or clients who are highly influenced by their decisions should consider professional liability insurance. Think of potential mistakes, like wrong advice, missing a deadline, disclosing a known effect, or a design error; such mistakes not only affect your financial stability, but they also hurt your business reputation.

Consultancy Professionals

Professionals whose advice directly impacts financial matters, such as consultants, advisors, and financial professionals.

Legal and Financial Professionals

Professions with high-risk exposure, frequent claims, and high court costs, such as law firms, accountants, auditors, and tax professionals.

Design and Construction Professionals

Design and construction are critical professions that carry significant financial risks, which may be faced by general contractors, engineers, architects, and designers.

Marketing and Advertising Professionals

These professions depend on client expectations and affect revenue through advice, strategy, and creative decisions.

Real Estate Professionals

Real estate professionals should meet clients’ expectations, and that is where professional liability insurance steps in to protect real estate professionals from claims that arise from negligence or failure to deliver services as agreed.

Healthcare Professionals

Professional liability insurance in medical professions is essential for doctors, nurses, therapists, and dentists who are exposed to malpractice.

How Much Does Professional Liability Insurance Cost?

Professional liability insurance costs vary depending on your business type and risk level. Pricing is influenced by location, years in business, claims history, team size, coverage limits, deductibles, and annual revenue.

The average cost for a low-risk sole proprietor ranges from $400 to $1,500 per year. Small-to-medium businesses typically pay $500 to $3,000 annually, while medium-to-large businesses with higher risk may pay $2,000 to $5,000 or more per year.

Costs also vary depending on profession. Finance and accounting professionals usually pay $600–$1,200 per year, consultants pay $700–$1,500, IT and tech services pay $900–$2,000, and healthcare professionals pay $1,500–$3,000 or more per year.

For bookkeeping-only services, premiums can start around $300 annually. In some cases, professional association members may qualify for group plans with rates as low as $50–$200 per year for higher coverage limits.

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Several factors affect professional liability insurance costs, such as:

• Location
• Claims history
• Business size
• Annual revenue
• Years of experience
• Coverage limits and deductibles

Keep in mind: These figures are estimates and change based on policy limits and potential liability by profession. The goal of professional liability insurance is to provide you with long-term financial stability.

Is Professional Liability Insurance Mandatory in Canada?

Professional liability insurance is not mandatory in all of Canada; however, only those governed by industry regulations are required to carry professional liability insurance as a condition of practice for licensed professions, such as doctors, lawyers, accountants, and engineers, though some clients may also require it by contract.

Certain provinces in Canada, such as Quebec and Manitoba, require professional liability insurance for engineers, while Ontario is more focused on mandatory disclosure rules. On the other hand, PLI is not mandatory for low-risk professions, like consultants and freelancers, and small business owners, but it’s highly recommended for their financial protection.

What Are the Types of Professional Liability Insurance?

Timing is a key factor in professional liability policies, as coverage depends on when a claim is made rather than when the incident occurred. There are three important factors to consider with professional liability coverage: when the incident occurred, when the claim is made, and whether the claim falls within the policy period, which leads to the two main types of professional liability insurance.

Claims-Made Coverage

Claims-made coverage is the most common type in PLI. This coverage becomes effective if the claim is made during the policy period, even if the alleged error happened earlier. As long as the claim is made during the active policy period and the issue falls after the retroactive date, coverage can apply. That’s why keeping continuous coverage matters, and why some professionals choose tail coverage when ending or changing a policy.

Occurrence-Based Coverage

Occurrence-based coverage applies to claims during the active policy period, regardless of when the incident occurred, even if the claim is made years later. This coverage doesn’t have a retroactive date, tail coverage, or other complex time calculations. However, occurrence-based coverage doesn’t apply to all professions, and it’s less preferred for insurance providers.

What Is the Difference Between Professional Liability Insurance and Personal Liability Insurance?

Professional liability focuses on the work you do and protects you against claims that your services or advice caused financial harm, such as errors, omissions, or negligent advice. For example, a client may sue you because of incorrect advice that cost them money.

In contrast, personal liability insurance is part of personal policies like homeowners or auto insurance and is designed to cover bodily injury or property damage you or household members cause in everyday life. Mistakes made while performing professional services aren’t covered by personal liability. For example, a guest slips at your home and sues you.

Remember: As a professional, you may need both types of protection, professional liability to cover financially related claims and personal liability to protect your personal assets from everyday liability claims.

Commercial General Liability Insurance vs. Professional Liability Insurance

Both commercial general liability insurance and professional liability insurance can cover legal expenses when you are held responsible for certain types of damage. However, the type of damage is the key difference between the two policies.

Professional liability insurance: protects you from claims arising from professional errors, omissions, or wrongful acts related to your professional services.

Commercial general liability insurance: covers bodily injury or property damage caused by your business operations.

It’s important to identify your business type before purchasing a liability insurance policy. If your business provides professional services or expert advice, you should have professional liability insurance. However, other businesses require both, so you need to review your business type and what each insurance type offers.

How Do I Find Professional Liability Insurance Coverage?

Follow these steps to find the right professional liability insurance coverage for your business.

1. Assess your business risks: Identify your business risks and needs, gather key documents, and review contractual and regulatory requirements.
2. Search for insurance providers: Check professional associations or look for brokers who work with complex policies like PLI.
3. Compare quotes: Take time to compare coverage limits and deductibles, and choose insurers that offer policies customized to your specific services.
4. Make a purchase: This is the final step in securing protection for your business. You can adjust your coverage details to match your budget and risks.

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What Are Examples of Professional Liability Insurance?

Not sure which claim scenarios you might face while providing professional services? Check out these covered events and claim scenarios to understand if your business requires professional liability insurance.

• Negligence and Mistakes: Claims may arise if a professional is negligent while performing their services, such as when a client pays an IRS penalty due to an accountant’s miscalculation.
• Incorrect or Misleading Advice: Lawsuits against a professional due to their inaccurate advice that caused a financial loss to the client, such as a marketing strategy that causes a decline in a client’s sales.
• Service Delivery Issues: Claims may occur when a professional fails to meet contractual obligations, such as a wedding videographer forgetting to capture agreed-upon footage.
• Missed Deadlines: A client may file a claim if a missed deadline results in financial loss, such as when a lawyer fails to meet a court deadline to obtain an expert report, which leads to a summary judgment against the client.
• Design and Planning Mistakes: Claims may arise from design errors that result in significant risk or financial loss, such as an engineer designing a faulty product that leads to injuries.
• Copyright Infringement: A client may file a lawsuit if copyrighted material is used without authorization, such as posting unauthorized images found online on a client’s website.
• Libel and Slander Allegations: Accusations of libel or slander, regardless of their reality, such as when a marketing firm posts false claims about a competitor online, causing them to lose customers.

What Is Professional Liability Insurance in Healthcare?

Professional liability insurance in healthcare, also known as malpractice or medical liability insurance, protects doctors, nurses, and other healthcare providers from malpractice claims, including treatment errors. It covers legal expenses, settlements, and, in some cases, libel or slander claims.

Due to the high-risk nature of healthcare, financial security, career stability, and reputation protection are critical, and many hospitals require professional liability insurance as part of their risk management practices.

Professional Liability Insurance – FAQs

What is not covered in professional liability insurance?

A professional liability policy doesn’t cover intentional and criminal acts, like illegal or fraudulent activities. It also doesn’t cover bodily injury and property damage, which are typically covered by general liability insurance. Professional liability insurance also does not cover employee injuries or illnesses sustained on the job, which are generally covered by workers’ compensation insurance.

Is professional liability the same as malpractice?

No. Malpractice insurance is a type of professional liability insurance, but professional liability coverage is more comprehensive. Malpractice, also known as medical liability insurance, applies specifically to healthcare professionals and covers claims related to clinical errors.

Do I really need professional liability insurance?

Yes, you need professional liability insurance if you perform a professional duty that provides professional advice or services that clients rely on. It covers legal expenses if you’re sued and pays for settlements and judgments. It protects you from financial losses resulting from errors, negligence, or missed deadlines during your professional practice.

What does $1 million liability insurance mean?

A $1 million liability policy covers up to $1,000,000 per incident and usually $2 million per year, helping pay for legal fees, settlements, and damages from accidents like slip-and-falls. Anything above those limits is your responsibility.

How much does $1 million liability insurance cost?

The average $1 million liability insurance policy for small businesses costs between $500 and $800 annually, while low-risk professions typically pay between $300 and $600 per year. Medium-risk professions cost between $540-$1,020 per year, and high-risk businesses may pay $1000 or more annually.

Does liability insurance cover negligence?

Yes, liability insurance covers damages and legal costs caused by unintentional mistakes or negligence, such as accidents or slip-and-falls, but it doesn’t cover intentional or criminal acts.

What happens if I don’t have liability insurance?

Without liability insurance, any accident or claim comes straight out of your pocket. Legal costs, medical bills, and settlements can quickly add up, and lawsuits or reputational damage can result.

What are the disadvantages of professional indemnity insurance?

Professional indemnity insurance can be costly and complex, and it must be carefully managed to avoid coverage gaps caused by exclusions, coverage limits, and strict reporting rules.

What are the four types of negligence?

Not all negligence looks the same. There are four types of negligence, which include extreme carelessness, sometimes fault is shared, and sometimes responsibility falls entirely on someone else.

Do employees need professional liability insurance?

You might have PLI if you work in a company. Most employer policies put the business first, but a separate policy can help protect your personal work and side projects.