Professional liability insurance (also called errors and omissions insurance) is a vital part of an insurance plan for any business owner.
Liability Insurance protects you from the cost of legal fees and damage awards if a client sues you for negligent professional services. This includes an array of situations, such as messing up a project or not meeting expectations.
In this article, we’ll be taking a look at how professional liability insurance and malpractice insurance works. We’ll be looking at a few different things such as:
- What a policy covers and doesn’t cover
- How much insurance you should have
- Why you still need insurance after incorporation
- How much a policy costs.
What does professional liability insurance cover and not cover?
Professional liability insurance covers the cost of lawsuits that result from negligence, misrepresentation, and unmet expectations. This can include mistaken copyright infringement, loss of documents or data, and missed deadlines.
For example, suppose you run a graphic design business. You might face legal liability if you mistakenly use a copyrighted image in a design and your client is sued.
In these cases, professional liability coverage can protect you from having to pay out of pocket for unforeseen court costs.
Liability insurance coverage won’t cover incidents where there are,
- Claims made outside of your policy coverage period
- Intentional acts
- False advertising
- Legal liability between you and an employee
It’s also vital to understand the limits to professional liability insurance. In some circumstances, it won’t cover a situation because a different policy covers it:
- General liability insurance: covers day-to-day risks from bodily injury or property damage (such as someone slipping on your wet floor)
- Contents insurance: repair or replacement of destroyed, stolen, damaged, or lost business assets
- Cyber security insurance: lawsuits and other costs related to hackers or viruses
Professional liability insurance is only one tool in a belt of insurance products that mitigate your business risks. It ensures your business’ survivability if an unfortunate incident occurs.
Related: Difference Between E&O and Professional Liability Insurance
Need Professional Liability Insurance?
How much professional liability insurance do I need?
You can generally expect professional liability coverage to be $500,000 to $1 million. However, this doesn’t include the coverage amount for other policies like general or cyber liability insurance.
Speaking with an insurance advisor can help you understand exactly how much liability coverage you need. They can help determine this amount by understanding your line of business, risks, number of employees, and other business information.
Your clients may also mandate you carry a certain amount of insurance. For example, if you work with a large institution, they might require that you have a $2 million professional liability policy.
It’s vital to be appropriately insured. Otherwise, legal costs may go beyond your policy’s limit and force you to pay fees out of pocket.
Do I need professional liability insurance in Canada if I’m incorporated?
Incorporating your business has benefits like the creation of a separate legal entity. This separate entity means you’re no longer personally liable if someone sues your company. Instead, your financial losses are limited to what’s in the business.
Some mistakenly believe they no longer need professional liability insurance as a result.
Although you may remain safe personally, a lawsuit can force your business to declare bankruptcy and forfeit any assets it holds. This is how insurance protects your business, even if you’re incorporated.
How much does professional liability insurance cost?
Get a free quote online for your business insurance needs with APOLLO. You can even finish your policy purchase in under five minutes. It’s all from the comfort of your home — no office meetings required!
We determine your premium cost based on factors such as,
- The size of your business
- The number of employees you have (if any at all)
- Your location
- What services you provide
- Your coverage needs (coverage amount, deductible, coverage scope, etc.)
Have questions? Our insurance advisors are available over webchat and a phone call to offer real-time advice.
Overall, professional liability insurance is a must-have if you want to mitigate your business risks. However, it’s only one part of a complete business insurance plan. Get an insurance quote and talk to one of our advisors today.
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