Professional liability insurance can help cover you and your business when a professional service error is made with a client or client. Professional liability insurance is a different type of commercial insurance than general liability insurance and it extends your protection to damages resulting from your potential mistakes with your customers. We’ve described how it works and what it covers below. You can work with a financial advisor if you’re trying to figure out what insurance you might need, but you can also use their expertise to manage your personal finances.
What is Professional Liability Insurance?
If you provide professional services and advice as part of your career, you may need professional liability insurance. If you’re a financial professional advising and advising your clients on how to manage their money, no matter how hard you try, you could possibly make a mistake. If this mistake is costing your client money, you may need to purchase professional liability insurance.
Your client can take legal action against you, and your policy can cover your defense costs, legal fees, and any compensation you must pay. You insure yourself against the cost of a potentially costly mistake.
In the medical field, professional liability insurance is known as malpractice insurance. In the legal field, this is professional civil liability insurance for lawyers (LPL). In all cases, it protects the policyholder against acts of negligence even if the negligence was not intentional.
Professional liability insurance is not the same as general liability insurance that commercial businesses usually carry. General liability insurance covers incidents of injury or damage to third parties, accidents and property damage. However, general liability insurance does not provide protection against negligence, misrepresentation or error by professional service personnel.
What does professional liability insurance cover?
Professional liability insurance, commonly referred to as errors and omissions insurance or professional indemnity insurance, partially protects the policyholder from liability for a claim for damages or negligence brought by a client or customer to whom the policyholder sold a professional service.
Most professional liability insurance policies only cover you if they are in effect when an error or mistake is made. If you terminate your policy and a client you previously had files a claim based on a past event, your policy will not cover you, even if it was in force when the error was made. There are a few policies that cover your past clients. They are called occurrence policies. They are hard to find and are not offered by most insurance companies.
Professional liability insurance only covers civil cases, not criminal cases. Even in civil matters, policies vary in what they will cover, and each policy is different.
In general, professional liability insurance covers the following:
Breach of contract
Deadlines not met and services not delivered
Errors, omissions and faults
Before investing in a policy, it is important that you understand that the wording of these policies can make all the difference in their coverage. For example, if a policy says it covers negligent acts, errors and omissions, that means only omissions are covered, because negligent acts and errors are not covered.
Examples of Covered Items
Here are some examples of each category that your professional liability insurance may cover:
Breach of contract: The insured and the client may disagree on the terms of the contract. The policyholder, in this situation, must read the contract carefully, compliance with the specific conditions is not optional, and the contract must be a guide for the actions of the policyholder. If the policyholder and the customer fail to reach an agreement, a lawsuit may ensue.
Neglect: There is professional negligence when a health care professional, such as a doctor or an accountant, fails to act in a reasonable and prudent manner given his professional training. For a client to succeed in a negligence case against a professional, he must prove that the negligence was the cause of the plaintiff’s loss.
Deadlines not met and services not delivered: Missed deadlines and unperformed services will not only ruin your company’s reputation, but they could also land you in legal action in the event of significant harm to your client. One plan is to address these issues in the initial professional services contract.
Errors, faults and omissions: These are issues that can also be addressed in the professional services contract. You can put a plan in place to deal with errors or errors made and omissions in the service that may arise. However, professional liability insurance is always recommended since the conclusion of an agreement is not guaranteed. An example would be medical malpractice.
What is not covered by professional indemnity insurance?
Some situations are not covered by your professional liability insurance but may be covered by your company’s general liability insurance. You will need to check with your provider and study your policy carefully to be sure. Here are the situations that are generally not covered by your professional liability insurance policy:
Customer injuries: This can include slip and fall injuries, car accidents and more. Often, professional indemnity insurance covers this position except for car accidents.
Employee injuries: This item is generally covered by your state’s workers’ compensation program and not by commercial insurance.
Damage to company property: An engineer, for example, would probably need this type of insurance for himself.
Employee Discrimination Lawsuits: Often, neither general nor professional indemnity insurance covers claims for discrimination. Before buying your policy, check the conditions.
Professional use of the vehicle: Typically, general business insurance or your personal auto insurance will not cover the business use of your car. Specialized policies are a possibility, such as a business use policy.
Professional liability insurance is coverage that all professionals need to protect themselves and their business. Evaluate policies carefully as the wording of this type of insurance policy can be confusing and tricky. Get a font that not only suits you, but also the type of work you do. These policies have several exclusions that you should keep in mind when making your choice.
Professional and general liability insurance are complex financial products with many exclusions. It would be wise to check with a financial advisor before choosing a plan to help you maximize the dollars you spend and to ensure you have the right financial protection. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your corresponding advisors for free to decide which one is best for you. If you’re ready to find an advisor who can help you reach your financial goalsstart now.
Find out what other insurance products you need if you’re self-employed. SmartAsset has collected them for you in this handy article.
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