What is professional liability insurance?
Professional Liability Insurance is the type of insurance that provides coverage for specialists against liability claims arising as a result of errors, omission or negligence in the course of performing their duties to their respective clients. Professional liability insurance can also be referred to as Errors and Omissions Insurance. When you open your office for business as a professional, there is tendency that you will be all out to ensure that you get contracts as fast and as much as possible. You want to quickly finish one job or contract so that you can move to the next one. Or at times, you can be under so much pressure that you need to deliver a job or a project to a particular client within a very tight deadline. With all these, anything can go wrong and this can make your client to be displeased with you. However, it may not just end there. The client may drag you to court claiming some damages from you. If you are found guilty, the liability claim may be enough to sink your entire business. This can bring a major setback that you may not be able to recover from. In order to guide against such ugly situation, that is why you may need professional liability insurance for your business.
You need to understand that professional liability insurance is different from general liability insurance. While general liability insurance provides coverage against bodily injuries and property injuries; professional liability insurance provides coverage against negligence, errors and omissions.
Who Need Professional Liability Insurance?
If you are a professional that provides specialized services or advice to your clients, you need professional liability insurance. Specifically, the following are some examples of people that require professional liability insurance.
- Business Valuers
- Financial Advisor
- Investment Advisor
- Risk Managers
- Brand Managers
- Advertising Professionals
- Marketing professionals
- IT Consultants
- Personal Trainers
- Travel Agents
- Insurance Agents
- Real Estate Agents
- Management Consultants
- Software Developers
- Market Research Analysts etc.
The list is never exhaustive. It is just to provide you a clue that almost all business owners might likely need professional liability insurance. Let’s take photographers as an example. One may think that photographers may not need professional liability insurance as they are less likely to give financial advice that might lead to any financial loss. But let’s look at this scenario whereby a photographer is contracted to cover a wedding event. After the whole event, he discovers that his camera is missing. This means that all the wedding photos are gone. We all know how important such photos will be to the couples. In fact, they will be looking forward to reliving the memory of their wedding day through their pictures captured during the event. Can you imagine how devastating it will be when the photographer breaks the news of the missing camera to them? Unfortunately, they can’t go back to recapture the events. This is just an illustration because there is a likelihood that more than one person will capture the event. However, this notwithstanding, the couple may decide to file lawsuit against the photographer. You can imagine what effects this can have on his business. This can even mark the end of the photography business. But if he has professional liability insurance in place, this will provide coverage against the liability claims by the couple.
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What Does Professional Liability Insurance Cover
- Negligence: As a professional, you owe your clients due care when discharging your duties. However, no matter the amount of care you exhibit, what go wrong will still will go wrong. Of course, your clients or customers may not want to entertain any excuse. What customers want is result. We are used to the adage that says, “Customers are always right”. That does not mean that they are right, of course. You can then imagine when they are actually right and you are the one that is wrong. Negligence, errors or omissions can lead you to making a wrong piece of advice and this can cause your customers financial loss. They can then drag you to the court. Depending on the type of business you do, one wrong advice may affect more than one client. If this is the case, one law suit filed by a customer may trigger other customers to equally follow suit. It is better imagined what the impact can be on your business. But with your professional liability insurance, your business will be protected against any liability claim that may arise thereon.
- Delayed or Undelivered Goods or Services: Some projects may sometimes need to be carried out in phases. The project may require that a particular phase has to be completed before another phase can commence. Inability to complete one phase on time may make the entire project to fail completely. For example, you are to provide a venue for an event that will accommodate five hundred guests. Others suppliers will need to provide decorations, foods and drinks, music and other entertainments. On the fateful day, the venue suddenly becomes unfit for such events. Not only will the event fail; this will cause a lot of financial loss to your customers. All the money spent on inviting guests and other anchored activities such as provision of foods and other logistics will be lost. Whether payments have been made for decorations, music and other entertainment or not, the contract must have been signed. This means that the customer may still need to pay all the suppliers whether in part or in full. Delayed or undelivered goods and services can actually result into a loss to customer beyond what one can comprehend. It may not just be about what you are contracted to do alone. The professional liability insurance will cover the liability claims made on you. So, before you conclude that you don’t need the insurance, you better think twice.
- Defence Costs: You can only know when a lawsuit starts; you cannot actually predict when the case will end. The longer a case lasts, the more the defence costs you may likely incur. Remember that you cannot defend yourself. You need a competent lawyer to help defend or prove your case for you. Attorney fees can be very expensive. But if you have professional liability insurance in place, it is your insurer that will help you hire competent lawyer and ensure that his fee is paid.
- Copyright Infringement: You may say that this does not apply to you. You don’t need to be a copywriter before you insure yourself against copyright infringement. If you maintain a website for your business, especially if you have a blog, someone may feel that you have infringed his copyright. In most cases, the claim will come from large companies that you don’t have resources to fight. It may be from a competitor whose sole intention is to force you out of business. Professional liability insurance can help you overcome such situation as you will not need to personally pay for any claim from such alleged copyright infringement.
What Professional Liability Insurance Doesn’t Cover
You should understand that buying professional liability insurance does not mean that all your business risks are covered. Specifically, there are certain risks that are excluded from professional liability insurance policy. These are discussed below:
- General Liability: Professional liability insurance will not cover any bodily injury that occurs in your business premises or any property injury you cause to other people. These will be covered under general liability insurance.
- Intentional Acts: If you intentionally mislead your client or customer by giving him wrong advice, you will be the one to pay for any claim that you may be charged for the act. For instance, as a broker, if you persuade your clients to make wrong investment decision just because of the commission you will be paid, he can sue you for that and you will be the one to face the music
- Criminal Acts: Your professional liability insurance policy does not cover criminal acts that may lead to prosecution. Criminal acts are totally illegal and no insurance company will pay you for involving in such acts. Yesterday, I read about a realtor who sold fictitious plots of land for an amount that is over one million dollars. I learnt that the suspect has been charged to court. This is totally criminal charge. Even if he has professional liability insurance policy, it will be wrong for him to think that the policy will provide coverage for such criminal act.
- Occupational Hazards: There are certain risks that are peculiar to every business especially in manufacturing settings. If an employee’s hand is chopped off while operating a machine, this is an occupational hazard. Professional liability insurance does not cover injuries to employees. You will require workers compensation liability insurance in this regard.
- False Advertisement: If you are into consulting business, we all know how possession of relevant professional qualifications can add credence to the profile of the business. It is true that you may succeed in attracting clients to your business by projecting false information about yourself. It may make you appear better than you actually are. But the danger is that, it can lead to prosecution if your customers charge you to court for failing to live up to their expectations. Professional liability insurance does not cover this.
- Theft and Fire: What of the incidence of theft or fire? Will professional liability insurance cover this? The answer is “No”. Theft and fire will be covered by property insurance.
- Employment Disputes: Situation may occur that your employee may drag you to court because he believes that you have treated him unfairly. For instance, if you terminate the employment of an employee, he may consider the termination to be unjust on your part. If it happens that you need to pay any claim to the employee, this will not be covered by professional liability insurance and not professional liability insurance.
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Advantages of Professional Liability Insurance
If you are still not clear about why you need professional liability insurance, I will like to talk about two of its advantages below:
- Protection: It shields your business against expensive business liability. If you have been reading through this article, you will realise that business liability claims may be too expensive for you to bear as out of pocket business expense. No matter how perfect you are, you can make a mistake that can cause your client losses thereby provoking him to take a legal action against you. Such claims can send you out of business completely and you may never be able to recover from it. But with professional liability insurance, you can be at peace knowing fully that your policy is there to protect you.
- It gives you edge over competitors: In any competitive market, competition can be very fierce. If you are bidding for a contract, it is not just about your pricing strategy. Some contracts or companies will require that their suppliers have professional liability insurance in place. So, for companies without such insurance policy, the opportunity to be awarded the contract will be lost to those who have it. You don’t wait for the time such contract will come your way before you discover the need for the insurance.
Factors Determining Professional Liability Insurance Premium
Now that you see the need for the professional liability insurance, you may want to find out how much it will cost you. Well, this type of insurance is somehow unique. There are many factors that insurance companies usually consider in order to determine the premium a person may be asked to pay. Below are some of such factors:
- Nature of business: The nature of your business contributes immensely to the quotes you will get. For instance, financial advisors and personal trainers may not be exposed to the same level of risks. While wrong advice from financial advisors may cause a customer to make a wrong investment decision resulting into a loss running into millions of dollars; personal trainers may not be exposed to such level of risk.
- Level of experience: Constant practice makes you to become perfect in whatever you do. A person who is just starting a business may not be equipped like someone who has been in the same business for the past ten years. A person with little or no year of experience in a business will get higher quotes from insurance companies.
- Size: What is the size of your customers? What is the current level of activities of your business? The more your clientele base, the likelihood that you may have unsatisfied customers that will file claims against you. The size of the business you do with each customer will also determine the magnitude of the claim the customer will make. If your business is relatively small, don’t expect to be asked to pay the same rate that a company with numerous customers will be asked to pay.
- Staff strength: You don’t need to be the one that is negligent before a customer can sue you. If your employee is negligent in the discharge of his duties, you could be held responsible for his action. The more the number of your employees, the more the likelihood that one of them will commit errors or make mistakes that can make your customers to suffer loss.
- Location: An insurance agent operating in a very pricey location will definitely pay higher professional liability insurance premium that his counterpart operating in a suburb.
- Level of coverage: The level of coverage the insurance company will provide vis a vis the deductibles you are willing to pay will have tremendous impact on the professional liability insurance quotes you will be offered.
- History of past claims: If this is not the first time you are buying professional liability insurance policy, insurance companies will like to know whether you have filed claims in the past. A person who is not new to the policy and has no history of claims will possibly get cheap professional liability insurance quotes.
How to get cheap professional liability insurance quotes
I believe in cost savings. Why should I pay more for what I can get at a cheaper rate? A penny saved is a penny earned. If you are looking for how to get cheap professional liability insurance quotes, you can try these options.
- Shop around: Before you jump into the conclusion that professional liability insurance is very expensive, I will suggest that you shop around. You may not even need to start going from one insurance company to the other. You can take advantage of insurance quotes comparison websites. You only need to fill a form and you will get quotes from different insurance companies. While comparing quotes, you need to learn how to compare apples with apples as the insurance companies may not offer exactly the same things.
- Increase your deductibles: Just like auto insurance, if you want to get cheap professional liability insurance quotes, you can choose to increase your deductibles. You need to understand that in case of any claim, you will need to pay your deductible first before the insurance company will pay your claim.
- Standard operating procedure: If you have standard operating procedure that guides how your employees carry our specific operations or activities in your business, the chance that they will make mistakes or commit errors will be minimized. This may not result in you getting cheap professional liability insurance quotes initially but with time, it may reflect in your claims history. Since your employees are not prune to committing errors that can make customers to file lawsuits against you, you may not need to make any claim from the insurance company either. This can make the insurer to reduce your professional liability insurance premium.
- Training and development: This is similar to the point mentioned above. Untrained employees are likely to commit blunders. You can recoup part of the money you spend on training your employees from the savings you make on the lower premium you pay just because you don’t have any cause to file a claim.
- Ask for discounts: If you are not getting cheap professional liability insurance quotes from your insurance company, you can ask for discounts. If you know how to present your case, you can actually be granted discounts on the premium to pay. You tend to qualify for discount especially if it is one insurance company that handles all your insurance needs such as auto insurance, property insurance and general liability insurance. I believe that no insurance company will like to lose you to its competitors.
- Engage Insurance Broker: Insurance brokers work with many insurance companies and they are familiar with different insurance products they offer. A broker may help you locate an insurance company that will give you the best deal which you may not be able to find on your own.This may not necessarily means paying additional fee for his services. Insurance brokers usually get their commissions directly from the insurance company they represent.
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Before I close this article, I like to encourage you on the need to always get in contact with your insurer as early as possible about any event that may make you file a claim. Don’t delay till a customer file a claim against you. Any time you notice that a client intends or is planning to institute a legal action against you; the first thing to do is to contact your insurer. They know what to do and they will be able to advise you appropriately. One of the reasons why some professional liability insurance claims are usually declined is that, the insured don’t get to their insurance companies on time. Therefore, don’t risk being denied as the costs and the pain may be unbearable.