This policy provides critical coverage for consulting and service-based businesses
As important as general liability insurance is for nearly all types of businesses, there are some specific businesses that need another type of commercial insurance: professional liability. If you have a claim, having professional liability insurance could make the difference between keeping your doors open and being forced to go out of business.
What is professional liability insurance?
Professional liability insurance covers service-based businesses, essentially for giving the wrong type of advice or service. Commonly called errors & omissions insurance, or sometimes it’s known as malpractice insurance.
There are many professions that offer some type of service or consultancy that could result in some type of unintended loss from their clients. For example, accountants or financial planners could recommend a tax or investment strategy that inadvertently costs their client a lot of money. If the client sues for that, it’s not covered under general liability insurance. These types of claims are only covered if they have professional liability insurance.
Insurance agents are another profession that can recommend the wrong types of coverage. If there’s a claim and the client doesn’t have enough insurance to fully cover the loss, the client could sue the agent.
Claims-made insurance vs occurrence insurance
Professional liability insurance is typically structured a little differently than other types of commercial insurance, such as general liability. General liability insurance, commercial property insurance, commercial auto insurance, and most other types of policies are all what’s known as occurrence-based insurance policies. Coverage will depend on your policy being in force at the time of the incident, even if the lawsuit is filed later.
Professional liability insurance policies are typically claims-made policies. This type of policy requires the policy to be in effect both at the time of the incident and when the lawsuit is filed. This can potentially be problematic since a lawsuit might not happen for years after the incident.
For example, a house that was sold with a leaking roof or faulty foundation might not create a claim for a few years after the house was sold. But if the claims-made professional liability policy provides coverage going back to the date it was sold and is still active when the lawsuit is brought against the realtor, then there is coverage.
Why do I need professional liability insurance for my business?
If your business provides any type of professional service or you’re a consultant, you will want to strongly consider buying professional liability insurance. General liability does not cover professional-based claims, which means you have a huge risk exposure if you don’t also have professional liability.
General liability is there for physical injuries or property damage. For example, if a client walks into your consulting business and trips and breaks their leg, that lawsuit would be covered by general liability.
If you recommend the wrong investment portfolio, fail to fill out the right tax form, forget to mention that the roof on the house you’re selling has a leak in it, make a mistake as a doctor or lawyer, recommend the wrong type of antivirus software as an IT professional, or any other number of potential professional’s mistakes or advice, you should have professional liability insurance to properly cover you.
Let our agents review your business insurance package to make sure you are covered for any and all scenarios that may occur. Connect with us.