What is professional liability insurance?
Also known as errors and omissions insurance, professional liability insurance coverage protects your company from client lawsuits over missed deadlines, mistakes, or negligence – regardless of whether you’re at fault.
Who needs professional liability insurance?
Any business that provides professional services should consider professional liability insurance. Types of businesses that commonly purchase this policy include:
While any business could be accused of errors or oversights, those that make a living off their expertise are especially at risk. If your advice fails to deliver the expected results, a client could blame you and sue.
That’s why many client contracts require business owners to carry this business insurance. It provides peace of mind that you’ll be able to pay if your actions result in a client’s financial loss.
Even if your clients don’t require it, professional liability insurance can be an important part of your risk management efforts. Because even the best businesses can slip up.
What does professional liability insurance cover?
Though your relationship with your clients could start on a high note, there’s always a chance that things could go sour. If a client accuses you of giving inaccurate advice or dropping the ball on a project, you could easily find yourself in court. And those legal fees can quickly add up.
The right coverage can save you from having to cover those legal costs out of pocket. Professional liability insurance will protect you from accusations of:
- Errors or oversights: If your actions, or failure to act, causes financial harm.
- Breach of contract: When your business doesn't deliver agreed-upon products or services to your client.
- Negligence: Failure to take the same amount of care that other specialists would in your position.
- Budget overruns: If your work for a client costs more than agreed upon.
- Incomplete work or undelivered services: Failing to finish projects or deliver on commitments.
- Missed deadlines: Completing work late.
Professional liability is a claims-made policy, which means you can only file a claim during your policy period. As long as your policy remains continuously active, you’re protected against any lawsuits over incidents that occurred after your retroactive date, or the day your coverage first began.
Tech businesses typically choose technology errors and omissions coverage (tech E&O) which combines errors and omissions insurance with cyber liability insurance. It pays legal defense costs related to any of these claims, as well as data breaches and other cyber incidents.
Cyber liability coverage comes in two forms:
- First-party cyber liability insurance covers the costs if your own data is compromised.
- Third-party cyber liability insurance covers the costs if a client sues you over a data breach at their business.
Typically, a tech E&O policy will include both coverage types, but be sure to check with your insurance agent.
Wondering when you might need the protection of a tech E&O policy?
Let’s say you’re a software developer whose software is essential to a clients’ operations. If a bug causes the software to crash and knocks your client offline, your company could be held liable for any lost profits.
Imagine you’re an IT consultant who recommends a system to increase efficiency and quickly boost your client’s profits. If that system fails to deliver, you could be sued for poor advice.
Or perhaps you provide cybersecurity services to a client, but hackers still manage to steal data. This policy will protect you from claims of negligence over the breach.
How do professional liability and general liability insurance differ?
A professional liability insurance policy protects you from lawsuits over financial harm caused by your mistake or negligence. General liability insurance covers lawsuits over other third-party harm, such as:
- Bodily injury
- Property damage
- Libel or slander
- Copyright infringement
Many small business owners who provide services to clients will purchase both of these policies to cover a range of risks.
How much does professional liability insurance cost?
The price you’ll pay for professional liability insurance can vary.
But the coverage you choose can impact your premiums. You’ll need to balance your need to protect your small business with the need to manage your bottom line.
The median cost for an errors and omissions policy for tech businesses is about $60 per month, or $730 a year. While more than 80% of businesses pay $1,400 or less for an annual policy, the cost of your premium will be affected by factors such as:
- Policy limits: If your policy provides more coverage, it’s going to cost you more. Most TechInsurance customers buy a policy with a $1 million per-occurrence limit and a $1 million aggregate limit.
- Deductible: Your deductible is the amount you’ll have to pay out of pocket before your insurance kicks in. A higher deductible usually results in lower premiums. Most TechInsurance customers choose a $1,000 deductible.
- Level of risk: If your company stores large amounts of sensitive data or provides work that may put you in the crosshairs of a data breach lawsuit, your cyber risks are higher. That means your premium will be too.
- Business experience: If you’re a new startup, you may pay more than companies that have been in business for a long time and show signs of profitability and growth.
- Past coverage: If you’ve had prior insurance claims, you may end up paying more for future coverage.
Choosing the right deductibles and policy limits can help keep professional liability (E&O) insurance costs within your budget. So can paying your annual premium in one lump sum. The important thing is to make sure you have the right coverage in place before the worst happens.
Our expert agents can answer any questions you have and help you find the type of insurance that’s right for your business.