Protecting your business from liability is critical. If you or your business provides professional services or advice, professional liability insurance can help protect your assets if you are ever sued. It covers financial losses suffered by third parties as a result of errors and omissions in your services (it is also sometimes called E&O insurance).
Attorneys and physicians consider this type of protection a necessity; in fact, legal and medical malpractice insurance is required by law in many states. Other professionals who should explore and consider professional liability insurance include accountants, software developers, real estate agents and consultants.
According to the Insurance Information Institute, there are two types of professional liability policies: claims-made and occurrence. Most policies are claims-made, meaning that the policy must be in effect both when the event took place and when a lawsuit is filed for a claim to be paid. An occurrence policy is less common, but will cover any claim for an event that took place during the period of coverage, even if the suit is filed after the policy has lapsed (such as after you’ve retired or changed careers).
Policies will generally have a deductible ranging from $1,000 to $25,000. The amount of professional liability insurance you will need and how much it will cost depends upon the size of your business and the level of risk it poses. Coverage does not extend to losses caused by intentional or dishonest acts. Professional liability insurance also does not cover bodily injury or property damage claims (these are typically covered by commercial general liability policies).
Consult with your financial planner or inquire with your profession’s trade association about protecting your business from liability and to determine if you might need professional liability coverage.