Otherwise known as errors and omissions insurance, professional liability insurance is used in order to protect small businesses from client lawsuits resulting from unsatisfactory work. The next question from here is to know whether you need one or not. This is basically perfect for those businesses who rely on their expertise to earn a living.
Why Do You Need Professional Liability Insurance?
We all make mistakes, and like every human being, there is no perfect professional service provider out there. You also have to understand that not all customers will forgive you for errors you may have made in the course of delivering your goods or services to them, most especially when a huge amount of money is involved.
When Do You Need it?
There are many instances which require you to seek professional liability insurance. Some examples are when you make an omission in your work, you missed a project deadline, or you have given an ineffective business advice. During these situations, your clients may sue you, and this type of insurance will be good to cover any costs entailing legal defense, depending on your policy coverage and limitations.
What Does Professional Liability Insurance Specifically Cover?
Before going into detail on what this insurance policy covers, remember that it excludes communicable disease coverage. Here is a list of situations that you can use to claim for this:
- Missed deadlines
- Undelivered services
- Work oversights and mistakes
- Breach of contract
- Claims of negligence
Among all situations, claims of negligence is the most complicated, since it is hard to determine what it actually covers. You can look at the picture this way. For instance, a client hires you for your professional skills. As an expert, you are obliged to deliver your services within a reasonable standard. In case your client suffers financial losses, then that is a clear indication that you may be sued for negligence.
What are the Factors that Affect Professional Liability Insurance Premium?
There are certain risk and industry factors that affect the computation of professional liability insurance premium. It will also depend upon your deductible and coverage limits, as well as your business size. Claims history, and daily operations are also used to compute the cost of the policy. Generally, however, the policy costs about $60 monthly. Depending on the company, this can go up to a thousand dollars a year.
Who Needs this Type of Insurance?
Here is a list including what the policy covers for the professional
- Accountants: This includes auditors, as well. The insurance will cover lawsuit costs due to accounting and data entry errors, lost documentation, and miscalculations.
- Architects: This covers accusations made when they do not meet project specifications for a building design, late delivery, or other errors pertaining to construction.
- Consultants: The insurance for these professionals would cover inaccurate projections or ineffective advice.
- Engineers: The insurance covers disputes on delivery delays, issues with construction materials, and cost overrun.
Note that some clients will not work with you unless you have shown proof of a professional liability insurance. It is best to inquire about this type of insurance now.