When Is Professional Liability Insurance Required?
Professional liability insurance protects businesses and individuals from claims of negligence, mistakes, or failure to deliver services as promised. It’s a common safeguard for consultants, lawyers, accountants, architects, and healthcare providers.
When a client alleges an error or oversight, this coverage helps manage legal costs and potential settlements. Without it, a simple claim could lead to significant financial loss. Many professionals carry it by choice. Others are required to hold it by law or through contract terms.
What Is Professional Liability Insurance?
Professional liability insurance protects against claims related to professional services. If a client says your work caused them financial harm, this policy helps cover the fallout. That includes legal defense and possible settlements.
Professionals often face risks tied to advice, services, or documentation. This insurance steps in when clients allege mistakes, oversights, or missed deadlines. It’s especially common in industries where decisions carry legal or financial weight.
Professionals who typically need it include:
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Consultants
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Accountants
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Engineers
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Lawyers
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Architects
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Healthcare providers
If your work involves specialized knowledge or advice, you likely need this coverage.
What Does Professional Liability Insurance Cover?
This insurance covers claims tied to the professional services you provide. It doesn’t cover bodily injury or property damage. Instead, it focuses on financial loss caused by service-related mistakes.
Professional liability insurance covers:
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Failing to meet professional standards or deadlines
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Mistakes in advice, reports, or documentation
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Providing false or misleading information
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Attorney fees, court costs, and settlements—even if you’re not at fault
How much professional liability insurance you need depends on the nature of your business. Reach out to a local insurance agent to get advice on the most suitable policies for you.
Is Professional Liability the Same as Errors and Omissions?
Yes, it is. Professional liability insurance is the same as errors and omissions (E&O) insurance. You may also see the term “malpractice insurance” used in some professions or industries. To get a better understanding of the exact cover, refer to the terms of your policy or reach out to your insurance provider.
How Much Does Professional Liability Insurance Cost?
Professional liability insurance costs depend on several factors. Independent contractors may pay less. Larger firms or high-risk professions often pay more.
Key factors that affect the price:
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Industry: High-risk fields like healthcare or law cost more
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Business size: More employees usually mean higher premiums
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Claims history: Prior claims raise your rate
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Coverage limits: Higher limits mean higher costs
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Location: State regulations and local risks affect pricing
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Cyber risk: How valuable data stored by company is at risk from bad actors
When Is Professional Liability Insurance Required?
Sometimes, carrying professional liability insurance isn’t optional. It’s required in several situations.
Common examples include:
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Licensing requirements: Some states require coverage for licensed professionals like lawyers or healthcare providers
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Client contracts: Many clients demand proof of insurance before work begins
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Industry regulations: Regulatory bodies in finance, law, and healthcare often set minimum standards
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Government contracts: Public sector projects typically require it as part of compliance
Learn about our professional services insurance here.
This post is for informational purposes. The details and conditions of insurance policies vary. We always recommend speaking with an agent to understand the terms of your existing policies and the policies you plan to purchase.
To consult with an insurance advisor, call 800-392-6532 or email insure@colby-group.com.
