Professional liability insurance, also commonly known as errors & omissions insurance, is an important coverage for any business that provides professional services to others. Despite all good intentions, businesses sometimes make mistakes or do something else that causes a client to file a liability lawsuit, and in these situations, insurance provides financial relief and peace of mind.
However, finding the right policy can be tough due to the variety of options available and the specific coverage needs that businesses in certain industries may have. This guide will walk you through everything you need to know about how professional liability and liability insurance work, what coverage costs, and what to look for when you’re shopping for a policy. And we’ll cover a list of our favorite professional liability insurance companies, including the three below:
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Understanding Business Liability
One of the most significant risks that anyone who runs a business may encounter in the course of operating that business is liability claims. In the legal sense of the term, liability essentially means that a business or individual is responsible for a particular outcome. Within the legal system, liability also typically comes with some sort of accountability or penalty, meaning that if another person or business is harmed or a law is violated, the liable party may be forced to provide compensation to another.
Liability claims can have a variety of different legal foundations. Contract disputes form one of the most common bases of liability claims. Another fairly common form of liability claim is negligence, which can be found when one party suffers harm as a result of another party’s failure to exercise appropriate care. Another closely related form is strict liability, where a party can be found liable for harm done to another regardless of any negligence or criminal intent.
With several potential legal bases for liability, almost every business has exposure to potential liability claims and the resulting penalties, even when they strive to act responsibly and in good faith. And liability lawsuits are only becoming more common and more expensive. One recent study estimated the total costs of torts—just one form of liability claim—amounts to $423 billion annually between compensation to claimants, litigation, and insurance expenses.
How Corporate Structures Affect Liability
Understanding how liability works and the types of risks businesses can face from liability claims is important for business owners because both the business and its owners can be held liable in some cases. If a business owner is held personally liable in a claim, that individual’s personal assets can be seized for compensation. However, different corporate structures offer varying levels of liability protection to the business owners. Here are the distinctions between the most common business types:
- Sole proprietorship – In a sole proprietorship, there is no distinction between the business’s assets and liabilities and the individual’s assets and liabilities, which means that sole proprietors have unlimited personal liability.
- Partnership/limited partnership – Partnerships are a simple structure for two or more people to own a business together. In a standard partnership, each of the owners has unlimited personal liability. However, partnerships can be structured as limited partnerships, in which one general partner has unlimited personal liability and other limited partners have limited liability.
- Limited liability company (LLC) – LLCs are structured to combine certain aspects of partnerships and corporations. As it relates to liability, LLCs are more akin to corporations, where the business is treated as a separate entity from the owners and the owners’ personal liability is limited.
- Corporation – Corporations are legally considered separate entities from their owners, and therefore, the owners’ personal liability is limited.
Types of Business Liability
The specific liability risks that a business may encounter will depend heavily on the type of business in question. However, the wide variety of harms, injuries, or damages that can lead to a liability claim guarantee that almost any business has some form of liability exposure. Below are some of the common risks or situations where a business liability claim may arise.
- Personal injury – Businesses are often held liable for injuries that occur to patrons on the premises of the business. These are often referred to as “slip and fall” cases.
- Property damage – A business’s activities can sometimes cause damage to another business or individual’s property. In such cases, the harmed property owner may bring a claim against the business that caused the damage.
- Advertising injury and reputational harm – When one business defames another or says something that causes harm to that business, the business that has been harmed may be able to sue for damages.
- Employment practices – Wrongful termination, sexual harassment, discrimination, and other employment-related issues can be the source of liability claims from current or former employees against the business.
- Commercial auto – Commercial auto liability claims arise when the vehicles that a company uses to conduct business cause personal injury or property damage to another individual or business.
- Product liability – Businesses that manufacture or sell products can be held liable for damage or injuries that those products cause when they have flaws or defects.
- Professional liability/Errors & omissions – Businesses that provide professional services to another can be held liable in situations where a failure to perform services as agreed, a misrepresentation, or some other error or omission results in harm to a client or customer.
Understanding Professional Liability Insurance
The differences in corporate structure described in the previous section only relate to the personal liability of business owners, so any form of business can still face a liability claim. Fortunately, protection for businesses is available in the form of liability insurance. Liability insurance products help businesses with the costs of litigation and compensatory damages. In exchange for paying regular premiums to an insurer, the insurer will cover certain costs when a business is facing a liability claim.
A variety of insurance products are available to cover different types of liability claims. General liability insurance is a standard part of most businesses’ basic commercial insurance policies and typically covers common claims like personal injury, property damage, and reputational harm and advertising injury. More specific standalone coverages are available for other liability issues like employment practices and commercial vehicles, and insurers also sell umbrella policies that can increase a business’s overall liability protection. If a business sells physical products, they may obtain a product liability policy.
And for companies that offer professional services to others, professional liability insurance is an important form of protection against liability claims.
What Is Professional Liability Insurance?
Professional liability insurance is the insurance product that protects businesses that offer services or advice from liability suits made against them by a client or customer. Typically, these claims are brought when the business’s client or customer has suffered harm—usually but not always financial harm—as a result of some form of negligence or error on the part of the business. This form of insurance is also frequently referred to as errors and omissions insurance (or E&O insurance) because claims can be brought against the business if the source of the damage caused was an error or omission in the service provided to the client or customer.
Because professional liability insurance is focused on coverage for professional services, it is not appropriate for every business type. Rather, firms in industries like law, medicine, finance, design, construction, consulting, and insurance are the most likely to need professional liability coverage.
Professional liability insurance’s relatively narrow focus also means that a policy may not be sufficient to cover other needs that a business may have for liability protection. The differences between professional liability insurance and several other important forms of liability coverage are detailed below.
Professional Liability Insurance vs. General Liability Insurance
Professional liability and general liability insurance both offer important coverage from claims that may be made against a business. However, general liability—as the name suggests—is more applicable to a variety of business and claim types, while professional liability is more targeted.
General liability policies offer protection from a variety of claim types that all businesses might face, such as bodily injury, property damage, or reputational harm, that stem from the business’s usual operations. Common situations that might lead to a general liability claim include when a customer is injured while on the business’s premises, or when a business’s activities cause damage to another individual or business’s property. Most businesses should have a general liability policy in place, and along with commercial property insurance, general liability coverage is one of the standard components of a Business Owners Policy or Commercial Package Policy.
Professional liability insurance is more tailored to the specific liability exposures that professional service businesses might encounter. These are usually financial harms that might come to a client as a result of errors or omissions in the service provided. For example, if an accountant makes an error on a business’s tax filing, the business might sue to recover the costs of subsequent audits or tax penalties. Because not all businesses provide the types of services that might lead to such claims, professional liability is not usually included in general liability policies and is instead available as a separate policy.
Professional Liability Insurance vs. Product Liability Insurance
Professional liability insurance and product liability are similar in that they offer liability coverage for damages related to what a business sells. The key distinction is that professional liability covers businesses providing services, like lawyers, accountants, consultants, or designers, while product liability covers businesses that sell physical goods and products.
A product liability policy will typically cover claims of damage caused by a physical product, such as when a product defect causes injury to the user. These policies are typically held by manufacturers, distributors, retailers, or others in a product’s supply chain.
Product liability and professional liability can intersect when a product defect results from errors, omissions, misrepresentations, or other failures by a professional services business. For example, when a manufacturer sells a product with a design flaw that causes user injury, the manufacturer may be held liable, and their product liability policy would pay out a claim. In turn, however, the manufacturer could file a claim against the product designer to recover damages, and the designer’s professional liability policy would cover the costs.
Professional Liability Insurance vs. D&O Insurance
Directors and officers insurance, or D&O coverage, is a form of liability protection for corporate directors and their personal assets in the event that they are personally sued for acts related to their management of the company. Some of the issues that could lead to a D&O suit include breach of fiduciary duty, misrepresentation of company assets, failure to comply with employment laws, misuse of company funds, or other similar forms of mismanagement.
D&O insurance is similar to professional liability insurance in that it offers protection from claims related to professional performance, but it is different in several important ways. First, D&O insurance is limited to a company’s executives only, while professional liability coverage can apply to any of a business’s employees. Second, issues covered by D&O are limited to those related to the management of a company, as opposed to the professional services to others that are covered by professional liability insurance. This leads directly to a third difference, which is that professional liability claims are usually brought by the business’s customer, while the claims that would be covered under a D&O policy can originate with a number of different stakeholders, including customers, employees, investors, competitors, vendors, or others.
Who Needs Professional Liability Insurance?
Any company that offers professional services to others should consider obtaining professional liability coverage. The costs of defending against a liability lawsuit and potentially paying out damages can quickly become a major unexpected expense. This can be an unsurvivable blow for smaller businesses, and for larger businesses, the exposure risk only grows with the size of their client roster. And it’s important to remember that a business does not necessarily need to be at fault to face a liability lawsuit. A dissatisfied client could name the business in a suit in an attempt to recover losses regardless of whether the business actually made any mistakes, which means that professional liability insurance can offer protection even for companies that try to do everything right.
Some of the industries where businesses take out professional liability policies most frequently are law, medicine, architecture and engineering, design, consulting, software development and IT, accounting, and management consulting. In some cases, like law and medicine, having an active professional liability insurance policy is a legal requirement to practice in a given state.
Below are some fairly common examples of situations where a professional liability insurance policy might offer protection to a service provider:
- While removing a patient’s appendix, a surgeon accidentally damages a nearby nerve, requiring additional treatment for the patient. The patient sues, claiming medical malpractice and seeking damages to cover the costs of the new treatment.
- A technology consultant is hired to design and install a new point-of-sale system for a client. The consultant misses the agreed-upon deadline to launch the new technology, causing their client to miss out on thousands of dollars of revenue. The client seeks damages from the consultant.
- A building suffers a structural failure attributed to the design of the building. The building’s owner brings a negligence claim against the architecture firm that designed the structure.
- A lawyer forgets to file an important document in a lawsuit, and the judge then dismisses the case, preventing the lawyer’s client from winning damages in their case. The client sues their lawyer for legal malpractice.
These are just a few examples of how a professional liability claim might arise. The professional services category is fairly broad, so if you are unsure whether your business has professional liability exposure, you may want to speak to an insurance agent or lawyer to learn more.
How Professional Liability Insurance Works
Like other insurance products, professional liability insurance policies represent an agreement between an insurer and a policyholder. In exchange for regular premium payments, the insurer will cover certain costs (e.g. legal expenses, compensatory damages) in the event of a qualifying liability claim against the policyholder. As with most forms of insurance, a professional liability insurance policy will contain several key components that may vary based on the insurer and the policyholder’s particular characteristics:
- Coverage – The types of incidents and expenses that an insurer will pay for in the event of a claim. Professional liability policies may specify coverage for certain types of harm or sources of claims and not others, which is why businesses often have multiple forms of liability insurance.
- Premium – The amount of money that the policyholder must pay to retain the policy on a monthly basis. Premiums are typically higher for businesses that have greater liability risks and also increase in relation to the policy’s deductible and limits.
- Deductible – The amount of money a covered company must pay toward a claim before coverage kicks in. Typically, policyholders who are willing to pay a higher deductible will have lower premiums.
- Policy limit – The defined maximum that the insurer is required to pay toward claims filed on the policy. Insurers may offer several tiers of coverage limits or make the limit customizable, but businesses should expect to pay more as the limit increases.
However, professional liability insurance also includes several other features that are less common for other forms of insurance. Notably, insurers can write professional liability policies to cover incidents or claims that fall outside of the active policy period. Below are some of the key elements to consider in establishing when incidents can occur and be reported:
- Policy period – The span of time when your coverage is active. Effective dates for the policy period are usually linked to the payment of premiums. For instance, if you purchase a policy on January 1, your premium will offer coverage until December 31, after which time the policy expires if you don’t pay for another year of coverage.
- Retroactive date – In some cases, insurers will allow policyholders to set a retroactive date for coverage. For instance, if you purchased a policy on January 1 but set a retroactive start date of November 1, losses that occurred between November 1 and January 1 would also be covered.
- Tails – A tail, also known as an extended reporting period, allows policyholders to report claims within a certain period after the end of the policy and still receive coverage. Tails can be set for a certain time period (e.g. 60 days, 1 year) or indefinitely.
All of these components factor into one of the major distinctions between types of professional liability policies: claims-made and occurrence.
Claims-Made vs. Occurrence Policies
The key differences between claims-made and occurrence policies center around when incidents can occur and be reported in order for coverage to apply.
The bulk of professional liability insurance policies are written as claims-made policies. This means that a loss must have occurred and been reported between the retroactive date and the end of the policy period for the policy to apply.
In an occurrence policy, a loss must have occurred during the active policy period, but the claim can still be reported after the policy ends. This provides greater protection from potential claims for the policyholder, but because the period when claims can be filed is more open-ended, insurers carry greater risk and usually charge more for occurrence policies.
What Does Professional Liability Insurance Cover?
Professional liability insurance will pay for certain expenses that policyholders face when a liability claim is brought against them. This includes attorney costs and legal fees, costs and expenses related to a legal settlement, or compensatory damages and other costs associated with a legal judgment. However, the claim brought against them must qualify under the terms of the professional liability insurance policy. Below are some of the most common types of claims covered under professional liability insurance.
Negligence is a legal concept that refers to one party’s failure to exercise an appropriate level of care. Someone can be found negligent in a suit if several facts can be proven: that the person has a duty to exercise care, that they failed to fulfill that duty, that someone else suffered harm as a result of that failure, and that the harm was reasonably foreseeable.
When it comes to professional liability, the failure in question is usually an error or omission in services done for a client that produces the harm. For instance, an engineer has a duty to produce designs that are safe and structurally sound, so if a structure fails as a result of their design, they could be proven negligent.
A misrepresentation is a false or misleading claim usually made during negotiations over a contract or other agreement. Misrepresentations play into professional liability claims in situations where clients believe that they could have avoided a loss or injury if they had been provided with better, more accurate, or more honest information.
For instance, say a management consultant claims that a new business process will lead to major cost savings for a client. The consultant is hired and implements the new process, but the client finds that their costs are actually about the same. They could bring a suit against the consultant and claim misrepresentation.
Because many professional services businesses are hired to provide advice or guidance to their customers, there is always a risk that they will give bad advice and their customers will suffer as a result. For example, if an accountant recommends that a client take advantage of a particular tax loophole, but the client is not actually eligible to use that loophole, the client might try to bring a claim to recover the costs of any tax penalties they faced as a result of their inaccurate tax filing.
Mistakes and Oversights
Like the name “errors and omissions insurance” suggests, many sources of professional liability claims can stem from mistakes and oversights that can occur despite a business’s best intentions. These might include clerical errors, missed deadlines, incomplete communications, or other problems that lead clients to experience a loss. If a client brings a suit against a business for any sort of mistake or oversight, and links the oversight to some sort of harm or injury, the business will want professional liability coverage to help address the legal costs and any damages.
What Doesn’t Professional Liability Insurance Cover?
As has been discussed previously in this guide, professional liability insurance policies are tailored to particular types of liability claims against professional services businesses. As a result, many other liability issues are not covered under professional liability policies, including:
- Bodily injury – Bodily injury claims would be covered under a general liability policy.
- Property damage – Property damage claims would be covered under a general liability policy.
- Employment practices – Claims that a company has violated its employees’ rights or failed to meet its obligations to its employees would fall under an employment practices liability policy.
- Data breaches – While some software and IT professionals can be the subject of professional liability claims, many insurers treat data breaches uniquely and offer cyber insurance policies specifically for that purpose.
- Commercial auto – Liability claims stemming from the use of a business’s commercial vehicles would be covered under a dedicated commercial auto policy.
Professional liability policies also frequently have exclusions that affect coverage. For instance, professional liability insurance will not cover claims stemming from criminal acts or intentional harm done to the client. Additionally, these policies will not cover legal costs for suits initiated by the policyholder.
Professional Liability Insurance Requirements
Professional liability insurance is a good idea for most professional services businesses, but it is not strictly required in every situation. Requirements from government or licensing organizations to carry professional liability insurance do exist for certain professions, most commonly medicine and law, but the specific requirements may vary according to the state. Some of these differences between states will be detailed more below.
Aside from legal requirements, however, it is important to note that other stakeholders may require the business or individual providing the service to carry professional liability insurance coverage as a precondition or stipulation for other agreements. For instance, clients may require a business to carry liability coverage before hiring them to help ensure that the business will be able to pay out the costs if a claim arises. This is a common condition for government contracts especially. Similarly, a lender or investor may expect a business to carry professional liability insurance to minimize their own risk, and in some cases, holding a professional liability policy may be a condition of employment (e.g. hospitals hiring physicians).
Professional Liability Insurance Laws by State
Legal requirements on whether and how much professional liability coverage to obtain vary by state and profession. The two most frequent cases where PLI is required by state law are medicine and law, but some states may single out other professions for coverage requirements as well.
Medical malpractice is one of the most commonly required forms of professional liability insurance. Eighteen states require physicians to carry medical malpractice insurance, of which seven—Colorado, Connecticut, Kansas, Massachusetts, New Jersey, Rhode Island and Wisconsin—also require a minimum level of coverage.
Legal malpractice insurance requirements are also fairly common, but the specifics vary state by state. Only Oregon and Idaho require lawyers or firms to carry a certain level of legal malpractice insurance, but states including California, Texas, and Florida require lawyers to disclose to clients and/or report to the state whether they carry malpractice insurance and how much. Around half of states have no requirements for lawyers to carry or disclose professional liability coverage.
Requirements for other professions are more variable. To learn more about requirements that may affect your business, you should work with an insurance professional or contact another expert, such as professional associations, licensing bodies, or the government agency responsible for overseeing insurance in any states where you operate.
Considerations for Certain Businesses
The type, level, and frequency of risks that could lead to professional liability claims do not look the same across all professions. Insurers will write policies that account for these differences and offer different terms and coverage levels as a result. Below are some key details for different professionals to keep in mind when shopping for professional liability insurance.
The first and most important consideration for healthcare providers when obtaining professional liability insurance is whether a policy meets any legal requirements for coverage in a given state. Insurers should be able to tell a healthcare provider if a medical malpractice policy will satisfy requirements like per-claim or aggregate limits under a state’s laws.
Healthcare providers should also be aware that because the risk of liability claims is high, the annual premiums for medical malpractice insurance are the most expensive of any form of professional liability insurance. This does depend somewhat on specialization, with surgeons often paying tens of thousands of dollars per year in premiums and lower-risk practitioners paying less. Regardless, doctors and other healthcare providers should budget for expensive coverage and ask potential insurers about opportunities to save on costs.
As with healthcare providers, lawyers should take care to ensure that their professional liability coverage meets any applicable state requirements. While most states do not require certain levels of coverage, lawyers or their firms may need to disclose to clients and state regulators if they do not carry a certain level of coverage.
Costs and coverage needs for lawyers can vary depending on the area and scope of the lawyer’s practice. For example, legal practice around intellectual property and patent law, securities, and trusts and estates are all considered higher risk because clients are more likely to face a financial loss attributable to their lawyer. Lawyers in these specialties should obtain more coverage and expect to pay higher premiums.
Other factors to discuss with an insurer include whether you practice in a firm or as an in-house counsel to a business, firm size and caseload, and whether you practice part-time or full-time. Additionally, retroactive dates are an important consideration. Most lawyers will want to set a retroactive date to at least when they began in their current firm and preferably to when they first began practicing.
Architects and Engineers
Architects and engineers can frequently face professional liability claims. Missed deadlines or incomplete project work can set back project schedules and cause clients financial losses, while structural failures attributable to a building’s design represent a major risk exposure for negligence claims.
One of the main considerations for architects and engineers when shopping for errors and omissions insurance is the policy’s limit. The liability risk for a landscape architect or a firm that primarily designs single-family homes will likely be much less than that of a firm that works on large office buildings or major infrastructure projects. Firms should work with insurers to set appropriate coverage limits that account for the scale of the liability claims they might encounter.
Consultants of all types can face liability lawsuits, but some of the particulars can vary according to the business’s focus and specialization. For instance, a consultancy that primarily deals with software and technology may have greater risks associated with data security, whereas a financial consultant or accounting firm may make errors or omissions related to financial information. For this reason, it is important to think through potential sources of liability claims against your consulting business and ensure that your policy contains clauses and provisions that offer coverage (or do not exclude coverage) for risks common to your business.
Lawsuits against teachers have become more common in recent years, and the need for professional liability coverage for educators has grown as a result. Teachers are sometimes sued for misconduct or causing (or failing to prevent) injuries and other harms to students in their care.
Many educators believe that their school or in some cases a union will offer them protection in the case of a liability claim, but this is not always the case, so taking out a personal policy is often a wise choice. Some unions or trade organizations representing teachers partner with insurers to offer affordable policies that are highly tailored to teachers’ unique liability risks. This is a good starting point for many teachers when shopping for professional liability coverage.
Two of the most common liability issues that an advertising agency, public relations firm, or other communications or media business will face are defamation and intellectual property. For example, if a media product that your company creates libels or slanders one of your client’s competitors, the competitor could try to file suit against you, the client, or both. The same could happen with cases of copyright infringement and other intellectual property issues. Fortunately, most general liability policies include some protection for advertising injuries and copyright infringement.
A more complicated situation would be if the client subsequently sues your business to recover costs associated with a claim against them related to an advertisement or other communication. In this case, a professional liability policy may be a necessary protection. In evaluating professional liability policies, advertising agencies should work with insurers to understand the respective limits of a general liability policy and a professional liability policy and how they work together to provide protection.
Insurance agents are most often subject to liability claims in instances when their clients are left uninsured or underinsured as a result of an agent’s error or omission (e.g. not filing documentation to purchase a policy) or bad advice (e.g. recommending a policy that did not provide sufficient coverage).
As with some other industry-specific forms of professional liability insurance, coverage for insurance agents can depend on the agent’s specialization. Premiums and limits for professional liability coverage tend to be higher for those who specialize in property and casualty products when compared to life and health because the frequency and potential size of claims is often larger.
The Benefits & Drawbacks of Professional Liability Insurance
Because professional liability insurance is not strictly required in many industries and locations, some businesses may wonder whether the coverage is worth the cost. The answer will depend on each business’s particular industry, risk profile, and risk tolerance, as there are certainly arguments for and against purchasing PLI.
Benefits of Professional Liability Insurance
- Offers protection whether or not the business is at fault. Any dissatisfied client can choose to sue your business, whether there is merit to their claim or not. Even if you did nothing wrong, professional liability insurance is helpful because it will cover legal costs that you would otherwise have to pay out of pocket. If your business was at fault for damage that a client experienced, professional liability insurance can insulate you from a worst-case scenario if you are forced to pay out a significant amount in damages.
- Valuable for developing and maintaining client relationships. Potential clients will respect the professionalism of a business that carries professional liability insurance, and indeed, many clients will actually require liability coverage as a condition of contracting. And when working with a client, having a professional liability policy reduces the possibility that a client might try to exploit the business with the threat of lawsuits.
- Helps ensure business can continue to run smoothly. In addition to legal expenses, some insurers will provide compensation for lost wages or income when the business spends time dealing with a claim. Additionally, some insurers offer a benefit to reimburse the cost of a public relations firm if the claim is likely to bring about reputational damage.
Drawbacks of Professional Liability Insurance
- Highly tailored policies make insurance shopping difficult. There are few standard forms of professional liability insurance. However, terms of professional liability policies can vary widely across profession, location, business size, and even industry specialization. This means there are lots of options on the market, and it can be hard to sort through the different possibilities.
- Expensive for many professions with little ability to lower premiums. For professions with a high likelihood of facing claims or high costs when claims occur, PLI can cost thousands of dollars per year. Because rates are calibrated based on this risk level, and because carrying professional liability coverage is legally required or else difficult to conduct business without, it is hard to avoid paying for this major expense in some cases.
- Policy provisions may still leave some businesses exposed. Not every policy covers every situation, which means that businesses may still have professional liability risks even with a policy. For instance, coverage of work done overseas is rare because other countries have different legal theories around issues like negligence. And the policy period is a common issue as well: the wrong retroactive date or not purchasing tail coverage could leave policyholders on the hook for certain claims.
Professional Liability Insurance Costs & Premiums
The costs of various forms of business insurance can add up quickly, and for professional services businesses, errors and omissions insurance only adds to the insurance bill. While no business owner wants to break the bank to obtain coverage, professional liability insurance is often a worthwhile expense for the protection and peace of mind it can offer. In this section, we will break down the typical range of costs for this form of coverage as well as the factors that affect policy premiums.
How Much Does Professional Liability Insurance Cost?
Costs of professional liability insurance can vary widely depending on factors specific to the policyholder, which will be explained in more detail in the next section. As a result, the most accurate way to get information about what professional liability insurance will cost your business is to speak directly to agents or brokers who can quote you different options. Insurance professionals may also be able to find you discounts to help you save on costs for professional liability coverage and other forms of business insurance. However, a variety of estimates of the cost of PLI can be found through online research, and some insurers will post typical rates to gauge the cost.
Most sources estimate that a typical business will pay between $500 and $1,000 per year per $1 million of coverage, which comes out to around $40 to $80 per month.
Factors That Affect the Cost of Professional Liability Insurance
Insurers set the rates that they charge for professional liability coverage based on their assessment of risk for the insured. Insurers charge more in situations where the policyholder is likely to face claims or where the claims will be more costly to pay out and less in situations where the risk is lower. Some of the key factors that insurers look at in their assessment of professional liability risk are detailed below.
Industry and Profession
The most important factor in the cost of professional liability insurance coverage is the industry or profession of the policyholder. As covered earlier in the guide, different industries face different types and levels of professional liability risk, and for industries where costly claims are more likely, insurers charge more for coverage. For this reason, industries like healthcare and engineering will likely have higher premiums.
Where a business operates also matters for professional liability insurance costs because states have differing laws and regulations that might affect how likely or expensive a lawsuit will be. For example, say one state has a three-year statute of limitations for malpractice claims and another has a five-year statute of limitations. A business in the latter state will likely have slightly higher professional liability insurance costs because the window of time in which a claim can occur is greater. Another difference is states’ treatment of comparative fault and contributory negligence. In states where a plaintiff can more easily be found to be partially or wholly responsible for the injury that led to a claim, the typical cost of damages in a lawsuit may be lower and insurers can accordingly charge less for coverage.
The risk that a business will face a professional liability claim increases as the business grows.
Insurers may assess this risk based on the number of employees in the organization, the number of clients/projects, or other factors. Increases in the scale of a business increase the chance that someone will make a mistake or that a client will be dissatisfied enough to file a claim. As a result, larger businesses should expect to pay more for professional liability coverage.
A major factor in the cost of any insurance policy, including professional liability, is the terms of the policy itself, especially the coverage limits. Policies that have a higher limit will usually have more expensive premiums because the potential costs to an insurer in the event of a claim are greater. However, policyholders who take on more risk in the form of higher deductibles may be able to obtain lower premiums, even with high coverage limits.
Years in Business
Insurers consider businesses with a longer track record to be safer to cover than those that are new. Having many years of experience in the business’s field can establish a strong reputation for a company and help reduce the risk of errors. These factors make it less likely that a client will face a claim, and accordingly, insurers will charge lower rates for companies with a strong record.
Having a history of claims against the business is a strong indicator that future claims are likely to occur. The number of claims on record is often a byproduct of the business’s industry, but even within an industry, some businesses will be better than others at avoiding the sorts of mistakes that lead to claims. Insurers will charge more to cover businesses who have had a higher number of recent claims.
Finding the Best Professional Liability Insurance
Professional liability insurance provides protection beyond what is usually available with a general liability policy, so it has become an important form of insurance coverage with the steady growth of professional services industries over time. Today, there are a number of options on the market from both major insurers with strong and varied commercial insurance offerings to more specialized providers focused specifically on professional liability policies or even liability coverage for particular industries. This section of the guide will walk through some of the key factors to consider when seeking out the best professional liability insurance for your business.
Comparing Professional Liability Insurance Providers
Finding a good professional liability policy can be challenging. Many different providers are available each offering pros and cons, and businesses must be careful to make sure that they choose appropriate coverage based on their particular needs. Here are some of the key factors to consider when comparing providers.
Coverage Options and Policy Limits
The type and amount of professional liability coverage that your business needs to obtain should be one of the most important considerations when evaluating insurance providers. As has been discussed previously, coverage needs will vary based on industry, location, business size, and other factors. It is important to think carefully about your business’s needs and work with potential insurers to make sure that your risks are covered appropriately.
Policy limits are typically offered in standard increments (e.g. $1 million), with each increment coming at a higher cost. For businesses with greater risk exposure, you will want to assess how high coverage limits can be set under an insurer’s liability policies. You may also want to inquire about umbrella liability coverage if an insurer sets maximum coverage limits on their professional liability policies.
You will also want to review policies carefully to understand exactly what is or is not covered. In some cases, a standard policy will have exclusions or other provisions that affect your ability to receive coverage, but insurers will frequently offer endorsements that address these issues.
Claims Reporting and Support
When evaluating insurance policies, you should take note of each insurer’s rules and requirements around reporting claims. For professional liability in particular, an important consideration is whether the insurer offers both claims-made and occurrence policies. Retroactive dates and tails can be critical decisions in making sure that you have coverage when claims arise, so you should find an insurer who can work with you to find the best fit for your needs.
Another consideration is the type of support and service included in your policy. For example, insurers will offer ongoing risk management resources to reduce the likelihood you will face a claim. Another fairly common practice is for the insurer to assign defense counsel to handle your case.
Once you understand what your insurer offers in terms of claim support, you should make sure that your business is prepared to report information to your insurer in a timely fashion and in line with the insurer’s requirements. Being able to provide copies of contracts, client communications, or other information quickly after an issue arises can be critical for having a claim resolved favorably.
Premiums and Deductibles
For professional liability insurance, as with any commercial insurance policy, costs will be one of the main factors that business owners consider when comparing providers. Although most businesses cannot easily change many of the factors that most affect their insurance costs, such as industry or location, insurance providers do offer different rates for comparable levels of coverage.
One of the key decisions to work out is how high you want to set your deductible based on the coverage limit you need. Choosing a higher deductible entails more risk for the policyholder since they have to cover a greater share of the cost of a claim, but they can lower their regular premiums by doing so.
It is worth remembering that the lowest-cost policy may not be the best value, so cost should be evaluated alongside other factors. A low-cost policy with poor coverage may leave a business much worse off in the long run than one with higher premiums but more comprehensive coverage.
One of the best ways to compare providers is to seek out information from other policyholders or industry experts. If another source can confirm that an insurer delivers quality coverage and good value, then they may be an option worth considering. If other customers have been unsatisfied, however, the company may be one to avoid
Two good sources of information about company reputation are the Better Business Bureau and J.D. Power. The BBB rates companies based on their trustworthiness and response to customer complaints, while J.D. Power produces customer satisfaction surveys for a variety of insurance products.
One additional question to ask about company reputation is whether an insurer has expertise in your particular industry or specialization. If an insurer caters more directly to your specific business type, you may have greater reassurance that their policies are designed with your risks in mind.
Professional liability claims can be very costly, so you want to know that your chosen insurer has good financial resources and a track record of reliability when paying out claims. If not, your business could end up being responsible for paying legal costs and damages when a claim occurs.
One good way to gauge an insurer’s financial strength is to check their rating with one of the major credit ratings agencies like A.M. Best, Moody’s, or Standard & Poor’s. These organizations evaluate different companies’ strength using proprietary formulas and issue ratings based on different financial factors.
The Best Professional Liability Insurance Companies
Hiscox (Best Overall)
Hiscox offers user-friendly shopping and claims support, competitive rates, and coverage for dozens of industries, making it a well-rounded option for most small businesses.
Coverage Options and Policy Limits
Hiscox specializes in commercial insurance for small business and has particularly strong offerings for errors & omissions or professional liability coverage. Hiscox claims that it covers more than 180 industries or professions and tailors coverage to each one’s unique needs. Hiscox even offers commercial insurance coverage tailored to side hustles, entrepreneurs, and the self-employed.
Hiscox policy limits for professional liability policies start as low as $250,000 and can reach $2 million, with flexibility to set an appropriate target based on your industry and other factors. Policies are usually written on a claims-made basis, but Hiscox includes retroactive dates as a standard feature and offers extended reporting periods for a reduced price. Additional coverage features are tailored to the policyholder based on needs or issues common to their industry.
One standout benefit of Hiscox for some businesses is its international presence and willingness to insure work done outside of the U.S. As long as any claim against a business is filed in the U.S. or Canada and eligible under other terms of the policy, Hiscox will cover it. For businesses that do work abroad, this is an important form of coverage.
Claims Reporting and Support
Hiscox has an excellent claims experience. Claims can be submitted online 24/7 with a quick form and available documentation, by phone during available hours, or through physical mail, and Hiscox promises to validate coverage and make a claims decision within three weeks of an incident being reported.
In the event of a claim, Hiscox will work with the policyholder to appoint a defense attorney if necessary.
Premiums and Deductibles
As with other insurers, Hiscox’s rates depend on characteristics unique to the business but are generally competitive with similar insurers. Hiscox advertises that its policies can start as low as $22.50 per month, and other sample quotes on the Hiscox website list premiums ranging from around $36 per month to $65 per month. Hiscox also offers a 5% discount for bundling two or more Hiscox commercial insurance products.
To find out what professional liability coverage with Hiscox will cost you, the company has a fast and easy quote process. Insurance shoppers can speak with a licensed agent by phone or get a quote online. Hiscox streamlines the process by quickly honing in on your business type and adjusting the application based on your business’s needs.
Founded in London, Hiscox is more widely known in the U.K. and other international markets but maintains a strong presence in the U.S., where it specializes in serving small businesses. Hiscox has not been included in the J.D. Power surveys but does maintain an A+ rating with the Better Business Bureau.
Hiscox has a long track record of reliability and performs well on measures of financial strength A.M. Best grades Hiscox at an A (Excellent), while Standard & Poor’s offers an A (Strong). These ratings indicate that Hiscox can be trusted to meet its financial obligations.
Hiscox has many of the positive qualities that any business needs: a fast and easy quoting process, tailored industry-specific coverages, competitive rates, simple claims reporting processes, and good customer service. For this reason, Hiscox is our choice as the Best Professional Liability Insurance Company Overall.
Next Insurance (Most Affordable; Best for Small Business)
With a highly regarded reputation in the industry, experience serving a number of different fields, and refined customer service, Next Insurance is an excellent choice for small business professional liability coverage.
- Customized policy packages for your unique needs
- Instant online quotes specific to your business, averaging 30% less than competitors
- Coverage begins immediately after modifying or selecting your plan
- Not conducive to large organizations with more complex insurance needs
Professional liability insurance is one of more than 12 policy types offered by Next Insurance for small business owners. Its professional liability policies are comparable to those of other insurers with some notable benefits to point out. As with all Next policies, interested business owners are able to obtain an instant quote online by answering a series of questions about their business. For business owners who are unsure about whether or not they need professional liability coverage or prefer to speak to a representative on the phone, one of Next’s licensed insurance agents can help determine the amount and type of coverage needed.
Next professional liability policies start at just over $18 per month or about $220 annually, which is extremely reasonable when compared to other carriers. In our experience, Next’s policies are typically 30% cheaper than competing providers. Additionally, businesses that already have another policy with Next—like general liability or commercial auto—will receive a 10% package discount when they add more coverage.
Some other notable items to highlight about the Next professional liability policy is that it offers “prior acts coverage” for certain types of businesses, and Next makes a commitment to not raise premiums during the policy term if a claim is filed. Lastly, because Next provides complete online access to its policies, it is incredibly easy to add additional insureds to both policies and certificates of insurance instantly.
While Next has only been in operation since 2015, the company has quickly built a solid reputation within the industry. Being backed by Munich Re, its financial strength ratings are excellent. This means that despite its smaller size, customers shouldn’t worry about Next’s ability to cover claims. With regards to customer experience, Next outperforms many legacy insurance companies, and has earned an A rating with the Better Business Bureau. The only notable downside to Next is that its streamlined and efficient approach to offering insurance online makes it less conducive to larger businesses with more complex needs.
In summary, Next provides a one-stop shop for small business owners to get most, if not all, the insurance they need, including professional liability. Its policies are affordable and its coverage sufficient for most use cases. The company’s combination of convenient and low-cost policies make Next Insurance our top pick for affordability and our top pick for small business professional liability coverage.
Travelers (Best for Consultants)
Travelers is one of America’s largest insurers, offering a number of personal and commercial insurance lines. With tremendous financial resources and such an extensive selection of products, Travelers likely has the tools to fit your business’s insurance needs.
Coverage Options and Policy Limits
Travelers offers professional liability products that are suited to professionals in many industries, but its coverages are less tailored to each industry than some other competitors. Instead, Travelers professional liability insurance is categorized into a smaller selection of products, such as real estate professionals, financial institutions, or designers. These categories each contain policy benefits that are suited to businesses within that category.
Travelers professional liability limits can start as low as $100,000 and go up to $1 million for most policies, but you can apply for a higher limit with additional documentation if needed. Most Travelers policies are written on a claims-made basis but allows for retroactive dates and extended reporting periods.
One convenient feature of Travelers policies that is less common with other insurers is that for certain professional services businesses, Travelers includes professional liability automatically as a feature of business owners policies. If your business doesn’t qualify for this automatic coverage, professional liability policies are available as a standalone or as an endorsement to other BOPs.
Claims Reporting and Support
Travelers has a strong, comprehensive online claims center that makes it easy to initiate claims, upload documents, and receive updates at your convenience. Travelers additionally offers some of the best risk management services available in the industry, including a library of resources about various risk issues facing particular business types. Professional liability coverage also includes complimentary consultations with a leading professional liability defense law firm. The firm can advise Travelers policyholders on issues like firm management, business ethics, and client relationships, topics that can all contribute to liability claims if mishandled.
Premiums and Deductibles
Travelers has reasonable rates with a good degree of flexibility based on business’s needs. Through its First Choice+ service, Travelers has a “Pick-A-Premium” feature for certain industries which offers different prices for different levels of coverage limits and policy benefits. For instance, accountants can apply for eight different configurations of coverage at prices ranging from $325 to $850 per year.
One downside of Travelers is the quoting and shopping experience. You can’t obtain an online quote and instead need to call or find a local Travelers agent to discuss your options.
With a track record of more than 150 years in business, Travelers has been a trusted choice for commercial insurance for generations. On J.D. Power’s most recent Small Commercial Insurance Study, Travelers came in sixth overall for customer satisfaction with a rating of 831 out of 1,000, which just beat the category average of 829. Travelers additionally holds an A rating with the Better Business Bureau.
Travelers is among the largest commercial insurers in the U.S. with around $19 billion in premiums written each year. This strong market position is accompanied by a stellar A++ rating from A.M. Best—the highest available—plus an Aa2 from Moody’s and an AA from Standard & Poor’s, both of which are third-highest on their respective scales.
With flexible limits, category-specific policies, and convenient options that integrate professional liability coverage with a BOP, Travelers has good coverage options for many businesses. We feel these features make it a strong pick as Best for Consultants because policies can easily be adapted to the firm’s size and specialization.
HPSO (Best for Healthcare Providers)
Healthcare Provider Services Organization, or HPSO, is a professional liability insurance provider specifically targeting coverage for health professionals. With deep expertise in the health industry and more than 1 million health professionals already covered, HPSO is an excellent choice for malpractice insurance and other professional liability products in the health industry.
Coverage Options and Policy Limits
HPSO offers a variety of impressive professional liability coverages for the healthcare field. HPSO’s professional liability coverage is available for both individuals and for organizations, with tailored solutions available for dozens of professions and specializations.
HPSO’s policies typically cover up to $1 million per claim or $3 million in aggregate each year. Policies also frequently include other benefits like personal liability, license protection, and deposition representation, and policyholders can add endorsements for features like sexual misconduct/abuse and HIPAA violations.
HPSO offers both claims-made and occurrence policies and allows for the purchase of tail coverage on claims-made policies. These options can be reassuring for policyholders who want to ensure that they have the right time frame of coverage for whenever a claim might arise.
Claims Reporting and Support
HPSO has good tools for managing policies and reporting claims. HPSO has a dedicated phone line, and while the hours are limited, HPSO also has a website with a client portal where policyholders can access information and forms to start the claims process.
One of HPSO’s other great strengths with regard to claims is its track record of success in the courtroom. As part of the policy, HPSO policyholders are assigned a defense attorney when claims arise, and HPSO has won more than 90% of cases that go to trial.
Premiums and Deductibles
Premiums for professional liability insurance in the healthcare industry are mostly dependent on specialization and location of practice, and like other malpractice providers, HPSO will look to these factors when setting rates. Therefore, it is hard to generalize what HPSO coverage might cost.
HPSO offers a number of good discounts under certain eligibility criteria, which is welcome news given how expensive malpractice insurance can be. Many of HPSO’s professional association partners have discounted rates. Additionally, HPSO offers a 50% discount for recent graduates, a 50% discount for professionals who are temporarily leaving practice, and a discount for professionals who only practice part-time. If you hold multiple licenses or certifications, you can also get coverage for multiple areas of practice under one policy.
The best way to learn what exactly HPSO will cost you or your organization is to obtain a quote. HPSO’s website allows shoppers to easily get a quote online.
With industry specialization in health, HPSO is recognized as an excellent source of professional liability coverage for health professions. In fact, HPSO partners with more than 40 professional associations of healthcare providers nationwide, indicating HPSO’s popularity and trust in the industry. While HPSO does not have a rating with the Better Business Bureau or J.D. Power, the underwriter of its policies, CNA Financial, holds an A+ from the BBB and has historically performed well on J.D. Power’s customer satisfaction surveys for large commercial insurers.
HPSO’s policies are underwritten by CNA Financial, a major insurer and one of the largest commercial insurers in the U.S. by premiums written. With such a large presence in the market, CNA backs HPSO’s policies with strong financial resources. CNA carries an A (Excellent) rating with A.M. Best, an A+ (Strong) rating with Standard & Poor’s, and and A2 rating from Moody’s.
Other insurers provide professional liability insurance for health professionals, but HPSO stands out for its targeted focus and expertise in the health sector. Their policies are well-tailored to meet the needs of healthcare professionals in a variety of practice specializations, making HPSO our pick as the Best Professional Liability Insurance for Healthcare Providers.
Proliability (Best for Teachers)
Proliability is focused entirely on professional liability insurance, making it a trusted carrier for professionals in a variety of industries and specializations. Proliability boasts affordable rates while also backing its policies with the underwriting of major national insurance carriers.
Coverage Options and Policy Limits
Proliability offers a variety of products for healthcare professionals and business professionals, including around 30 tailored solutions for health providers and a dozen industry concentrations.
The terms of the policy and coverage limits will vary depending on your business’s industry, but coverage amounts on Proliability’s policies are within typical industry ranges. Most policies have a $1 million limit as a standard, but lower-risk professions can have limits set lower, whereas there is more flexibility to increase the limit for high-risk professions as long as the policy underwriter approves it. And in some cases, like for Proliability’s insurance agent policies, professional associations have negotiated different limits for their members. Most of Proliability’s business liability policies are written on a claims-made basis with an option for occurrence coverage in some cases, whereas its health options are written as occurrence policies.
Proliability also offers related liability coverages that a business might need, including general liability, employment practices liability, and workers’ compensation. For some professions, Proliability may also have coverage available for needs like cyber insurance, identity theft, or workplace violence.
One area where Proliability’s coverage stands out is the insurance products available for education professionals. With separate tailored liability coverage available for K12 and postsecondary teachers, along with impressive coverage limits up to $4 million annually in the aggregate and $2 million per claim, Proliability offers one of the most impressive options available for teachers.
Claims Reporting and Support
Many reviews of Proliability from policyholders comment on the exceptional customer service and claims support available with their policy. Proliability offers all of its policyholders risk management resources and services to lower the probability of a claim, and its team is composed of experts from a number of licensed professions that the company insures. Some products include additional benefits like access to defense attorneys in the event of a claim and legal services like contract review for policyholders.
While Proliability’s extra services and professional expertise are helpful, one downside is that the process of reporting a claim can be somewhat cumbersome. There is not an easy way to call in or report an event that might lead to a claim online. Instead, policyholders must write an email or a physical letter to inform Proliability of the event.
Premiums and Deductibles
With dozens of different policy types available, Proliability’s costs are highly variable depending on the specifics of your needs. In general, Proliability is regarded as having reasonable rates compared to other competitors. To learn more, Proliability has a quick online quoting system to get a sense of what policies might cost you, and you can also reach out by phone or email to get additional information.
With a dedicated focus on professional liability insurance products, Proliability has a strong reputation for professional liability coverage in a variety of professions. Proliability is not included in J.D. Power’s insurance ratings, but the company does hold an A+ rating with the Better Business Bureau. Further, Proliability is BBB-accredited, the only one of the insurers highlighted in this guide to meet the BBB’s highest standards for ethical business practices.
Most of Proliability’s policies are underwritten by Liberty Insurance Underwriters, a subsidiary of Liberty Mutual—another one of the largest commercial insurers in America. Liberty Insurance Underwriters and its parent company both have solid financial strength ratings, including an A from A.M. Best, an A2 from Moody’s, and an A from Standard & Poor’s.
With specialized expertise in a number of fields for professional liability coverage, Proliability is an excellent choice for many healthcare and business professionals. But the company stands out for its impressive coverage of educators in K12 and higher ed, which makes it our pick as the Best Professional Liability Insurance for Teachers.
NAPA (Best for Insurance Agents)
The National Association of Professional Agents provides benefits including professional liability insurance for insurance agents, investment advisors, financial planners, tax preparers, bookkeepers, and select other fields. With direct experience and specialization in the industry, NAPA is an excellent choice for insurance and financial professionals.
Coverage Options and Policy Limits
Fittingly for an association of insurance professionals, NAPA offers a number of specialized policy plans for both independent agents and agencies. Policies are available for life and health insurance agents, property and casualty, investment advisors, financial planners, and more, with three tiers of coverage options for most plans. NAPA also offers plans for newly licensed agents with less experience to account for the greater possibility of errors.
Most of the policies are written on a claims-made basis with an option for extended reporting periods. Limits for individual claims are usually set at $1 million or $2 million with aggregate limits of up to $3 million; however, aggregates can be set as high as $10 million on most policies and up to $50 million in select cases.
NAPA also offers related insurance policies for insurance and financial professionals, including cyber and data breach insurance, health insurance, and life insurance.
Claims Reporting and Support
Filing a claim is relatively straightforward with NAPA, as policyholders can initiate the claims process by calling a dedicated phone line to report any issues that arise. With experience in the insurance industry, NAPA’s customer service and claims support is strong. Policyholders receive free or discounted access to risk management resources including continuing education to help ensure that they have the knowledge to protect their businesses from risk.
Premiums and Deductibles
One helpful feature of NAPA is its transparency in pricing compared to other insurers, with base prices for most of its policy offerings listed on the website without needing to get a quote. NAPA’s website states that policies start as low as around $27 per month, which totals just $324 per year, though that number can increase to more than $85 per month for certain insurance specializations at higher tiers of coverage and more than $125 per month for some of NAPA’s financial professional policies. NAPA is also able to offer additional savings and discounts for other related products and services to members of the association, so the financial benefits of choosing NAPA go beyond its competitive insurance rates.
To compare different offerings and price points, NAPA’s website has good information about its various policy offerings to make sure you choose an affordable, high-quality insurance plan that meets your company’s needs.
NAPA’s varied insurance offerings are specifically tailored to meet the needs of insurance agents and agencies, along with other financial professionals like financial planners and investment advisors. NAPA is not included in J.D. Power’s insurance satisfaction ratings, but underwriter CNA has performed well in the Large Commercial Insurer category in past years. NAPA does hold a spotless A+ BBB rating, suggesting that NAPA treats its customers fairly and ethically.
NAPA is another provider whose policies are underwritten by CNA Financial. CNA Financial boasts strong ratings with the credit ratings agencies, including an A (Excellent) rating with A.M. Best, an A+ (Strong) rating with Standard & Poor’s, and an A2 rating from Moody’s.
NAPA focuses its offerings on insurance agents and financial professionals exclusively. While this means that NAPA is not for every type of business, NAPA does stand out for their impressive tailoring of plan options based on what products agents sell, how long they have been operating, and what tier of coverage they would prefer. This extensive specialization in the industry makes NAPA an easy choice as the Best Professional Liability Policy for Insurance Agents.