Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.
Updated July 17, 2024 Fact checked by Fact checked by Bobby L. Hickman, FLMI CLUBobby L. Hickman is a longtime business and financial journalist who brings decades of experience in insurance and financial services to his editor role at Investopedia. He has worked with insurance and financial services companies, such as AFLAC, Allstate, Confederation Life, Farm Bureau, SunLife, and others. His editorial clients include the Atlanta Business Chronicle and Advisors magazine.
Professional liability insurance (PLI) protects professionals such as accountants, lawyers, and physicians against negligence and other claims initiated by their clients. Professionals with expertise in a specific area require this type of insurance because general liability insurance policies do not offer protection against claims arising from negligence, malpractice, mistakes, or misrepresentation.
Depending on the type of business, professional liability insurance may have different names, such as medical malpractice insurance for the medical profession or errors and omissions insurance for real estate agents. Professional liability insurance is a specialty coverage not provided under homeowners' endorsements, in-home business policies, or business owners' policies.
Professional liability insurance policies are usually claims-made, which means coverage is good only for claims made and events occurring while the policy is active. You might also find occurrence policies, which means you're covered if an incident occurred while you had coverage—even if you let your policy expire and a client files a claim against you after it expired. However, occurrence policies are rare in this field.
Typical professional liability policies will indemnify the insured against loss arising from any claim or claims made during the policy period because of any covered error, omission, or negligent act committed in the conduct of the insured's professional business during the policy period.
Coverage does not include criminal prosecution, nor all forms of legal liability under civil law—only those listed in the policy.
Examples of liabilities not covered by PLI are:
Cyber liability, data breaches, and other technology-based issues may not be included in core policies. However, insurance that covers data security and other technology-based security issues is available as a separate policy.
Examples of liabilities covered by PLI are:
Professional liability policies tend to be worded differently between providers. Some might be expressed in ways that make them easier to compare, while others might differ enough that what appears to be the same coverage isn't.
Wording with significant legal differences can be confusingly similar to non-lawyers. For example, consider these two phrases:
Coverage for "negligent act, error or omission" indemnifies the policyholder against loss/circumstances incurred only as a result of any professional error or omission or a negligent act. A negligent error or negligent omission would not be covered because of the wording.
The "negligent act, negligent error, or negligent omission" clause is interpreted differently than the previous clause. For an error or omission to be covered, it must be determined to have been negligent and not simply an error or omission. If you wanted all five types of incidents to be covered, the clause might need to read "negligent acts, negligent errors, negligent omissions, errors, or omissions."
Before purchasing a policy, you should talk to a lawyer who is familiar with professional liability insurance. You don't want to buy insurance and find you are not covered for a given claim because the provider's wording doesn't allow an incident to be covered.
How much you pay for this type of insurance will depend on the type of business you are in, as some industries are riskier than others. Additional factors include the geographic area you practice in; how many years you have been in business; the number of claims you've had against you in the past; and how many employees you have.
Like other types of insurance, coverage limits and deductibles also influence how much you'll pay. According to insurance provider Insureon, the median cost for its clients' professional liability insurance is $61 per month (or $735 annually), with most policies costing between $600 and $1,200 per year.
Policy liability limits allso vary significantly, typicallly ranging from $250,000 to $2 million or more. Many policies include limits of $1 million for a single claim ("per occurance") and a $1 million "aggregate limit" that laststhe lifetime of the policy.
If you work for a company that offers services, the company should have PLI, and your services should be covered under its policy. However, if you're a small business owner or solo practitioner providing professional services or contracting your services to other businesses, you should consider purchasing this type of insurance. IPLI is also encouraged if you offer advice to clients. You may also be legally required to have coverage to work in your field.
Some examples of professionals who need this insurance are:
Professionals and businesses that provide services to customers or advice to clients should most likely get a professional liability policy. These policies cover claims against you and your company for professional errors, mistakes, judgments, or failed service delivery.
The two types of professional liability insurance are claims-made and occurrence. Claims-made means the policy must have been active when the event and lawsuit happened, while occurrence means that the policy covers any qualified claim resulting from an incident while the policy was active (even if it has expired).
Personal liability insurance covers damages or injuries to others on your personal property. Professional liability insurance covers you if claims are filed against you for professional negligence, errors, omissions, or other issues that can arise if you provide professional services for a living.
Not everyone Certain professionals will find it essential to carry personal liability insurance, such as doctors, attorneys, and accountants. For others, the need for PLI depends on such factors as industry regulations, individual contract requirements, and how great their risk exposure is. However, anyone who advises clients or provides services should consider PLI.
Start by looking at highly-regarded insurance companies by checking ratings from such agencies as A.M. Best for financial stability and customer service. Gather quotes from several carrier and compare the coverage details: the least expensive policy is not necessarily the best if it does not meet your needs. Select the coverage that best matches your own situation and your level of risk.
Professional liability insurance provides essential coverage to small business for protection against professional mistakes. It is essential coverage because mistakes happen regardless of how careful or experienced a professional is.
PLI costs average between $600 and $1,200 per year, so it's cheaper than footing the bill for a lawyer, court costs, and other related expenses if you face a claim. If you're a small business owner, you should talk to an insurance agent to determine how much coverage you should get. PLI is just one type of small business insurance you may need.