Say an accountant files their clients’ taxes on time, ensuring all their ducks are in a row. However, their client surprisingly gets a bill from the IRS. Instead of accepting the penalty, the client takes their accountant to court, claiming they made significant errors in preparing the returns.
A simple error can sometimes cost your clients money. When a client sues you because of a mistake committed by your company, professional liability insurance can help cover legal defense fees and other expenses. Professional liability insurance can help professionals and businesses avoid situations like this. Without it, such a circumstance may result in a costly claim that would almost certainly bankrupt or ruin your business.
What is Professional Liability Insurance?
Professional liability is the phrase used to define a professional’s culpability for any act or omission that violates a duty of care or service owed to their clients. It is also sometimes referred to as professional negligence.
The potential liability is compensation for negligence-related damage. The damage may have resulted from physical injury (for example, a broken arm caused by a neglected platform collapsing) or an economic loss (such as money lost by someone who lent money in reliance of an errant valuation over a property used in securing the loan).
Professional liability insurance is designed to cover a business for errors and omissions associated with the advice and services provided to clients.
It is beneficial for any business that offers professional services, such as lawyers, accountants, consultants, investment advisors, real estate agents, architects, medical experts, engineers, and tech companies. This insurance type generally covers court costs incurred from various client claims such as malpractice, negligence, misrepresentation, and inaccurate advice.
Professional liability insurance differs from general liability insurance in that it is specifically designed to cover client claims. This insurance may have different names depending on the profession, such as malpractice insurance for the medical and legal professions or errors and omissions insurance for real estate agents.
How to Choose a Reputable Insurance Company?
Although professional liability insurance is conceptually similar across providers, it’s important to note different companies may have particular coverage thresholds. When seeking professional liability insurance, opt for a reputable company with experience providing this coverage type. The following list outlines a few things to keep in mind when choosing a professional liability insurance policy:
- Find a reputable insurance company. It is recommended to choose one fully licensed in all jurisdictions, maintains financial stability, offers claims assistance, embraces personal ethics and risk management consultations, and provides competent and convenient customer service. Seek advice from authoritative online sources, coworkers, and mentors. When looking for a respectable insurance firm, professional associations are another excellent resource. Strong recommendations that highlight specific strengths and benefits are reliable indications of a company’s reputation.
- Don’t assume that the cheapest policy is the best. When it comes to malpractice insurance, the devil is usually in the details. That is, the contract’s language defines the scope of coverage, and a low-cost policy may provide insufficient protection. For example, the policy may exclude higher-risk activities such as working with trauma victims and doing custody evaluations. Some insurers may provide lower premiums by lowering policy limits for the corporation’s legal fees in defending the physician. Some plans may solely cover the defense of a patient’s claims (and not third-party claims, such as if a patient injures a third party).
Therefore, one needs to consider which policy package is the most suitable. Professional liability insurance costs will vary with your particular business sector’s risk level. For instance, if you’re a surgeon or accountant, you may experience higher rates than a general consultant. When you get a professional liability insurance quote, keep in mind your pricing will reflect liability.
- Select the amount of coverage that corresponds to your risk degree. Most practitioners buy $1 million per incident and $3 million per policy term. The insurance will pay a maximum of $1 million for a single occurrence and up to $3 million for the policy’s entire year.
Consider obtaining more significant limits if you work in a profession where suits or complaints are more likely (for example, with at-risk patients). You may also wish to consider more significant limits if you work in a high-stakes legal setting where high jury judgments attract national headlines. Additionally, ensure that the policy provides supplementary coverage for things like Medicare investigations and licensing board complaints.
- Select coverage that best suits your needs. Malpractice policies are available in two varieties: occurrence policies and claims-made policies. Occurrence policies are typically more expensive than claims-made plans in the first few years, but they are generally easier to comprehend and administer. Claims-made policies are less expensive initially, especially in the early years (the pricing differential eventually approaches that of occurrence policies over time). Still, the coverage necessitates greater diligence in either renewing the policy or inquiring about coverage options if the policy is terminated.
Pro Tip: To avoid claims rejections, always report client complaints and legal issues immediately.
Better Safe Than Sorry
Small business owners should have several types of insurance policies in place. Professional liability insurance should be at the top of the priority list for many businesses. A desirable rate cannot be overlooked when determining which professional liability insurance provider is best for your company. However, it would help to consider other variables such as financial stability, claims management, and customer service sensitivity to policyholders.