General Liability and Professional Liability Insurance are two standard technology insurance policies – but when do you need each one?
Good question. For many freelancers, the answer is simple: when my client requires it. Fair enough. If your contract requires insurance, you’ll need to have coverage before you can start a project.
But these policies also offer some intrinsic benefits to your business. In this article, we’ll look at why clients require these policies, what each policy covers, and why you may want technology insurance even if your client contract doesn’t require it.
Which Technology Insurance Policies Do Clients Require?
In your client contracts, you’ll often see language requiring you to have…
- General Liability Insurance (your contract may also call this Public Liability or Commercial Liability).
- Professional Liability Insurance (also known as Technology Errors and Omissions Insurance).
From a client’s perspective, these policies go a long way toward demonstrating that you’re a trusted business partner. You’re not just a lackey with a laptop. You’ve got financial protection in case of lawsuits, professional mistakes, and damage to your clients’ property or business efforts.
A client may have a risk management strategy that requires the company to make sure all its vendors, contractors, and freelancers have these coverages. For larger companies, this is often standard operating procedure. So be prepared to meet these business insurance requirements.
What Do General Liability and Professional Liability Insurance Cover?
When it comes to business insurance, there’s one thing you’ll need to remember: no single policy covers all your risk exposures. General Liability and Professional Liability are no different. Each policy covers different lawsuit risks:
- General Liability Insurance can cover lawsuits when third parties sue you over property damage, physical injuries, and damage to their reputation (see General Liability Insurance Basics for Technology Contractors).
- Professional Liability Insurance helps cover lawsuits related to the quality of your IT work – glitches, flaws, project delays, mistakes, and oversights can all be covered.
Because these policies work differently, your clients may require them in different circumstances. IT consultants who work at a client’s office may be required to have General Liability Insurance because it can cover lawsuits over property damage (e.g., you damage a client’s office).
On the other hand, Professional Liability Insurance can be required for all sorts of IT contractors. It insures your work, which gives your clients peace of mind. Lawsuits over mistakes can be covered. And no matter how good you are at your job, there’s always the chance someone will make a mistake.
As we covered in “5 Professional Liability Exposures Every Tech Business Has,” often it’s the simple things like miscommunications that can lead to errors and, ultimately, professional liability lawsuits.
Why You’ll Want Technology Insurance Even if Your Clients Don’t Require It
In a survey of 500 small-business owners, we found that 17 percent of small businesses had to get insurance in order to get a contract. A sizeable number, for sure, but the majority of respondents said got insurance to protect their business’s future. Professional Liability Insurance and General Liability Insurance do just that.
The Court Statistics Project found that the typical cost of contract litigation is $91,000. And many lawsuits are much more expensive.
By making it so that a lawsuit won’t bankrupt your business, General Liability and Professional Liability Insurance protect tech entrepreneurs from a variety of liabilities, including lawsuits over IT issues, slip-and-fall accidents, and damage to a client’s property.