Professional Liability Insurance Cost: How Much Does it Cost to Protect your Business?

Camino Financial09 Jan 2024
Professional Liability Insurance Cost: How Much Does it Cost to Protect your Business?
When it comes to the professional liability insurance cost, business owners sometimes doubt if the expense is worth the benefits. In addition, some business owners may not even be aware of the potential benefits of professional liability insurance. But, small businesses going without insurance are setting themselves up for a painful (and expensive) future. Without the proper insurance coverage, businesses are vulnerable to legal and financial repercussions. Professional liability insurance protects business owners from potential damages if they are sued. No matter the quality of work a company does, it still may find a customer who blames it for some damages they incurred. If you don't have business insurance, your business could be on the hook for major financial settlements. In this article, firstly, we will introduce you to the basics of protecting your business through proper professional insurance. Secondly, and most importantly, we'll explore the professional liability insurance cost. Finally, we will also go over what it covers, who can benefit from it, and professional liability insurance requirements.

What is Professional Liability Insurance or Errors and Omissions Insurance?

Mistakes happen. No matter how professional your staff is. However, when incidents occur, customers may blame your company. If they do, they could sue you. Professional liability insurance provides coverage for you and your business in cases where you are found negligent in the services your company provided. Without liability insurance, you and your company are left responsible for any damages. When limited strictly to acts of negligence, professional liability insurance helps protect your business against claims. What claims? That your services caused a customer some financial harm. Consequently, they can sue you. In conclusion, if your business makes a mistake or fails to provide a contractual service, you may be found liable. That's why this is one of the most important types of business insurance (although you might still need small business health insurance, business equipment insurance and commercial car insurance).
#DidYouKnow A professional liability insurance is NOT the same as a general liability insurance.

How Much Does Professional Liability Insurance Cost?

Most business owners do not know what range of prices to expect when looking at insurance options. The cost of professional liability insurance varies depending on several factors.
However, the average cost of professional liability insurance hovers around $1,700 annually for small businesses. The median annual cost is a little over $713 ($59 per month).
Your policy is, by nature, designed for your business based on the products and services you provide. No two small businesses are identical. Therefore, no two professional liability insurance costs are either.

Factors that Affect the Professional Liability Insurance Cost

Policy costs vary depending on your business’s industry, location, operations, and size. The professional liability insurance cost also depends on your business’s budget. This means you may need to consider financing. However, there are still a few crucial factors besides these to consider when figuring out pricing. Two vital components to commercial liability insurance cost are your business’s industry and the policy limits you pick. Your policy limits are a significant influence on the cost of professional liability coverage. The standard limit is $1 million per claim for small businesses. Consequently, as companies grow beyond $1 million, they need to consider higher policy limits. Larger companies commonly expect their vendors to possess $5 million to $10 million in liability coverage. Procuring these higher limits often necessitates providing the customer contract that requires it. These policies have varying deductibles from zero to 10% of the business insurance limit. In other words, your company’s industry and insurance history will determine this.

Small Business Liability Insurance Cost by Industry

Find the median professional liability insurance cost in some important industries (medians according to Insureon):
  • Architect professional liability insurance cost:
    • Building design: $1,705 per year
    • Construction and contracting: $1,000 per year
  • Consulting: $650 per year
  • Finance and accounting: $400 annually
  • Insurance professionals: $550 annually
  • IT / technology: $730 annually
  • Media and advertising: $845 per year
  • Nonprofits: $575 per year
  • Nursing liability insurance: $110 per year (non-medical home health aides)
  • Personal care: $500 per year
  • Photo and video: $639 per year
  • Real estate: $665 annually
  • Sports and fitness: $400 per year

What does Professional Liability Insurance Cover? 

Policies differ, but errors and omissions insurance (E&O) covers common claims like:
  • inaccurate advice
  • misrepresentation
  • negligence
  • violation of good faith and fair dealing
Moreover, policies can also help cover privacy violations if specified in the terms and conditions. Above all, when considering policies, be sure to look over what they cover in detail. Accountants who make clerical errors costing customers money, damage to a client’s goods, or even injuries are common scenarios leading to litigation. Unfortunately, these situations can have expensive legal consequences. Even if you are not found liable, hiring a business lawyer, legal fees and court costs can be daunting. Therefore, liability insurance can help with the costs, including liability damages and legal fees. Many errors and omissions insurance policies use a “claims made” basis that includes retroactive coverage up to a certain point. That is to say, claims against you for services performed after your retroactive date will be covered, even though you did not have a professional liability insurance policy yet. However, the issuer would not cover any claims on services before your policy’s retroactive date. The further back the date, the better your protection against unpleasant surprises.
#DidYouKnow The commercial liability insurance cost is a specialty plan, meaning they are not provided for in-home business policies, business owner’s policies, or homeowners endorsements. These other coverages are essential, but they do not offer the protection of liability insurance. 

What does Professional Liability Insurance NOT Cover? 

Professional liability insurance coverage does not cover:
  • Bodily injury
  • Property damage
  • Excess amount
  • Data security
  • Media liability
  • Management-related claims
#DidYouKnow There's also Business Interruption Insurance that can protect your assets from disasters.

Who Needs Professional Liability Insurance?

Any professional who has a company should have some form of professional liability insurance. More importantly, this should exist on top of a business owner’s policy or in-home business policy. This coverage protects business owners against financial loss if customers sue them. Various business types benefit from professional liability insurance, including (but not limited to):
  • Restaurants
  • Food trucks
  • Dry cleaners
  • Contractors
  • Shops
  • Lawyers
Any company that provides services directly to customers should consider having liability insurance. In other words, even if a business does nothing wrong, someone can still sue them.

If you have customers, you might need professional liability coverage

All types of consumers expect professionals to have extensive knowledge and training. They also expect services to meet professional standards. Consequently, if you don't meet customers’ expectations, they may file a lawsuit to hold your business responsible. Customers might claim that your business:
  • was negligent
  • offered inaccurate professional advice
  • didn't perform the professional services as advertised or desired
Likewise, clients sometimes need any company they work with to have liability coverage.
#CaminoTip In addition to various insurance coverages, your business will need the financial resources to help pay for these and other expenses. While your business builds its assets, it is a good idea to have extra funding on hand whenever necessary.

Industry and Law Professional Liability Insurance Requirements

Some states require specific types of businesses to have professional liability insurance. Depending on your industry or the laws of your locality, you may be required to carry PLS insurance. Therefore, if you do not comply with this requirement, you could lose a lot of money due to lawsuits. In addition, you could also face fines or even jail time.

What's the best professional liability insurance?

Finding the right small business insurance is crucial. On the other hand, the best professional liability insurance will definitely depend on your budget (some are more expensive than others) and your industry (many insurance companies are industry-specific). As a result, it can be hard to find the right coverage. That said, here is our top 5 insurance company picks:
  1. The Hartford
  2. Hiscox
  3. AIG
  4. The Doctor's Company
  5. Thimble

Professional Liability Insurance: Everything you Need to Know

Professional Liability Insurance overview infographic

Protect Yourself and Your Business: Finance the Cost of Professional Liability Insurance

Getting the right professional liability insurance policy is a simple way to protect your business against negligence claims. In short, without professional liability insurance, your business could be at serious risk of financial harm in the event of a claim. While some industries are at a higher risk for these issues, no small business is truly safe from this problem. Therefore, it pays to be prepared in advance in the event of a lawsuit rather than scrambling to catch up.

Camino Financial can help you

Here at Camino Financial, we put all our efforts into ensuring there is “No business left behind.” We designed our loans to give your business the tools and resources it needs to thrive. This includes helping small business owners like you to take care of expenses like professional liability coverage. Our lending products are for entrepreneurs just like you. You can get a quote for a small business loan now to find out just how much freedom our financial products can offer. Then, after applying and being approved, we'll help you fund the small business liability insurance cost today! Finally, you'll be on your way to business success. Apply now!

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