What Does Professional Liability Insurance Cover? Protecting Your Business from the Unexpected

The risk of being sued for negligence or errors is very real for any service provider. The only way a business can get financial protection against these types of claims is to have a professional liability insurance policy. This policy will kick in should the professional service provider fail to live up to consumers’ expectations. 

Importance of Professional Liability Insurance

A professional service provider is a business that does something for a client. This may be cleaning air ducts in an HVAC unit, providing accounting services, or offering tutoring lessons. Consumers have expectations that these services will be completed to the highest standards. There are times when professionals miss the mark, and their clients sue the business. Without professional liability insurance, the business is left to cover the judgment or settlement on its own, along with any legal fees accumulated in its defense. When the business has a professional liability policy, the policy covers these expenses, saving it tens of thousands (or more). 

What Does Professional Liability Insurance Cover?

Professional liability protects a business from specific types of claims and damages:

• Errors and omissions: Mistakes made by the professional are covered claims in a professional liability insurance policy. 
• Negligence claims: When a professional is negligent in his actions, a claim can be filed, and this claim will be covered by professional liability insurance. 
• Defense costs: The policy will pay for the defense of accusations made against the professional service provider. 
• Defamation: The policy covers instances where the service provider is accused of defamation of another person or business. 
• Breach of confidentiality: Should the professional service provider somehow breach confidentiality, the claim would be paid by the insurance company. 

Common Policy Exclusions

Common professional liability policy exclusions include: 

• Intentional acts: If an action is done intentionally, the claim will be denied by the insurance company. 
• Fraudulent activities: Acts of fraud are not covered. A business will have to pay this type of claim out of their own pockets. 
• Punitive damages: Damages in excess of the simple compensation are considered punitive and will not be covered by the professional liability policy. 
• Property destruction: Property damage is covered by a general liability policy, not professional liability insurance. 
• Employee-related issues: A professional liability insurance policy will not cover incidents related to employee loss or damages. 

Types of Professionals Who Need Coverage

Most professional service providers can benefit from having a professional liability insurance policy, including: 

• Healthcare professionals
• Legal professionals
• Event planners
• Consultants and advisors
• Tutors
• Home services providers
• Athletic trainers and health advisors

Understanding Limits of Liability

It is important to understand the limits of liability. 

Per-Claim vs. Aggregate Limits

Service providers need to understand how claims are paid. There is a per-claim limit and an aggregate limit for the policy term. The per-claim limit is the amount that is capped that will be paid in each incident. The aggregate cap is the total amount the policy will pay for the policy term regardless of how many claims there are. It adds the claim totals up until the cap is reached. 

Choosing the Right Coverage Limit

It is important for service providers to ensure they have enough coverage. Talk to your insurance agent to understand the costs of claims and get the right amount. 

Tips for Selecting the Right Policy

Here are some tips for selecting the right policy.

Evaluating Your Professional Needs

Making sure that you get the protection needed to cover your business is essential. Some industries are more likely to be sued than others and for higher dollar amounts. Assess what you do for your clients and what the potential impact is from making a mistake in your services.

Comparing Providers and Policies

Shop a policy quote around to find the best provider with the best price. Different insurance carriers will price different industries more competitively than others. Each has a sweet spot and desire to take on certain business. Make sure you compare the same coverage when shopping around. 

Seeking Professional Advice

Talk to an insurance agent to get a good sense of what is needed and not needed when it comes to professional liability insurance. You may even want to check with professional organizations that have a discount policy available to members to help you save money. 

Get the Most Out of Your Professional Liability Insurance Coverage

Small business professionals should work to prevent claims from happening as much as possible. This keeps the costs of policies down and prevents you from being canceled for having too many claims. Understand what is covered and what is not covered to get the most out of your professional liability policy.