What Does Professional Liability Insurance Cover? A Complete Guide for Businesses
Professional liability insurance (PLI), also known as errors and omissions (E&O) insurance, is a crucial type of coverage for businesses and professionals who provide services or expertise. It protects against claims of negligence, mistakes, or failures in the services provided.
If a client sues you for financial losses due to errors in your work, professional liability insurance helps cover legal fees, settlements, and other costs. Without it, even a single lawsuit could be financially devastating.
In this guide, we’ll cover:
The definition of professional liability insurance
What professional liability insurance covers
What it does NOT cover
Who needs this type of insurance
How much it costs
How to choose the best policy
What Is Professional Liability Insurance?
Professional liability insurance is designed to protect businesses and individuals who provide professional services. Unlike general liability insurance, which covers physical injuries and property damage, PLI covers claims related to mistakes, omissions, or negligence in professional services.
Many industries require professional liability insurance, including healthcare, legal, financial, and consulting services.
What Does Professional Liability Insurance Cover?
Professional liability insurance covers financial losses resulting from mistakes, negligence, or omissions in your professional services. Common claims covered include:
1. Negligence or Errors in Service
If a client claims that your professional advice or service caused them financial loss, PLI covers legal fees and settlements.
Example: A financial advisor gives incorrect investment advice, causing the client to lose money.
2. Misrepresentation
If a client believes you misrepresented your qualifications or service, they can sue for damages.
Example: A real estate agent exaggerates a property’s potential return, and the buyer suffers a financial loss.
3. Breach of Contract
If you fail to deliver a service as promised in a contract, the client can sue you for breach of contract.
Example: A web developer doesn’t complete a project by the agreed deadline, causing the client financial harm.
4. Inaccurate Advice
If a professional provides incorrect advice that leads to a client’s loss, PLI covers the resulting lawsuit.
Example: A tax consultant provides wrong tax filing advice, leading to penalties for the client.
5. Omissions or Mistakes
If you forget an important detail in your service, leading to damages, PLI covers legal claims.
Example: An architect forgets to include a safety feature in building plans, resulting in costly revisions.
6. Libel or Slander (Defamation Claims)
Covers legal expenses if a client claims you made false statements that harmed their reputation.
Example: A marketing agency publishes incorrect negative information about a competitor, leading to a lawsuit.
7. Intellectual Property Infringement
Protects against lawsuits claiming that you copied someone else’s work without permission.
Example: A graphic designer accidentally uses a copyrighted image in a client’s logo, resulting in legal action.
What Does Professional Liability Insurance NOT Cover?
Professional liability insurance has limitations. It does NOT cover:
1. Physical Injuries or Property Damage – General liability insurance covers these.
2. Employee Injuries – Covered by workers’ compensation insurance.
3. Intentional Wrongdoing or Fraud – PLI doesn’t cover dishonest actions or intentional harm.
4. Cybersecurity Breaches – Requires separate cyber liability insurance.
5. Discrimination or Harassment Claims – Covered by employment practices liability insurance (EPLI).
Who Needs Professional Liability Insurance?
Anyone providing professional services or expertise should have PLI. Some industries where it’s essential include:
1. Healthcare Professionals
Doctors, nurses, dentists, and therapists need malpractice insurance, a specialized form of PLI.
Example: A doctor misdiagnoses a patient, leading to health complications and a lawsuit.
2. Consultants & Advisors
Business consultants, financial advisors, and marketing consultants can be sued for providing faulty advice.
Example: A business consultant suggests a strategy that leads to financial loss.
3. Lawyers & Legal Professionals
Attorneys can be sued for providing incorrect legal guidance or failing to file paperwork on time.
Example: A lawyer misses a critical court filing deadline, causing the client to lose a case.
4. IT & Tech Professionals
Software developers and IT consultants can be held responsible for coding errors or security flaws.
Example: A software bug in an app leads to financial loss for users.
5. Architects & Engineers
Design errors or structural flaws can lead to major lawsuits.
Example: A bridge design flaw causes a safety hazard.
6. Real Estate Agents & Brokers
Incorrect property valuations or contract errors can result in client lawsuits.
Example: A real estate agent fails to disclose a major defect in a home.
How Much Does Professional Liability Insurance Cost?
The cost of PLI varies depending on several factors, including:
Industry – High-risk industries (e.g., healthcare, law) have higher premiums.
Experience – Professionals with a history of claims may pay more.
Coverage Limits – Higher coverage limits increase costs.
Business Size – Larger businesses with more clients typically pay higher premiums.
Average Cost:
Small businesses: $500–$3,000 per year
High-risk professions (lawyers, doctors): $5,000+ per year
To get the best price, compare quotes from multiple insurers.
How to Choose the Best Professional Liability Insurance
1. Assess Your Risks – Identify common risks in your industry.
2. Compare Policies – Look for coverage that fits your business needs.
3. Check Coverage Limits – Ensure the policy covers potential lawsuit costs.
4. Read Exclusions – Understand what isn’t covered.
5. Bundle Policies – Combining PLI with general liability insurance can save money.
FAQs About Professional Liability Insurance
1. Is Professional Liability Insurance Required by Law?
It depends on the industry and state regulations. Some professions, like doctors and lawyers, are required by law to have coverage.
2. Can Freelancers Get Professional Liability Insurance?
Yes! Freelancers in fields like consulting, writing, and design can protect themselves from client lawsuits.
3. Does PLI Cover Employee Mistakes?
Yes, if an employee’s mistake leads to financial loss, the policy covers it.
4. How Can I Lower My PLI Costs?
Maintain a clean claims history.
Choose a higher deductible.
Bundle with other business insurance policies.
5. What Happens If I Don’t Have PLI?
Without PLI, you may have to pay legal defense costs and settlements out of pocket, which could bankrupt your business.
Final Thoughts: Protect Your Business with Professional Liability Insurance
Professional liability insurance is essential for anyone providing professional services. It protects you from costly lawsuits, helping you maintain financial stability and business credibility.
Get a Free Professional Liability Insurance Quote Today!
Don’t risk your business—compare quotes now and find the best coverage at the lowest price.
