Many small business owners wonder, just how much does professional liability insurance cost? They sometimes doubt if the cost of this insurance is worth the benefits. Some business owners may not even be aware of the potential benefits of professional liability insurance.
But, small businesses going without the 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. Without the proper insurance coverage, your business could be on the hook for major financial settlements.
In this article, we will introduce you to the basics of protecting your business through proper professional insurance. We will also go over what professional liability insurance covers and who can benefit from it. Finally, we will explore the professional liability insurance cost.
What Is Professional Liability Insurance?
Mistakes happen, no matter how professional your staff is. 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.
It is also known as errors and omissions (E&O) insurance.
When limited strictly to acts of negligence, professional liability insurance helps protect your business against claims that your services caused a customer some financial harm. If your business makes a mistake or fails to provide a contractual service, you may be found liable.
What does professional liability insurance cover?
Policies differ, but liability insurance covers common claims like inaccurate advice, misrepresentation, negligence, and violation of good faith and fair dealing. Policies can also help cover privacy violations if specified in the terms and conditions. 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. These situations can have expensive legal consequences.
Even if you are not found liable, the costs of legal fees can be daunting. In these situations, liability insurance can help with the costs, including liability damages and legal fees.
Many professional liability insurance policies use a “claims made” basis that includes retroactive coverage up to a certain point. This way, claims against you for services performed after your retroactive date will be covered, even though you did not have a policy yet. Any claims on services before your policy’s retroactive date would not be covered, however. The further back the date, the better your protection against unpleasant surprises.
Professional liability insurance does not provide coverage for:
- Bodily injury
- Property damage
- Excess amount
- Data security
- Media liability
- Management-related claims
Who Needs Professional Liability Insurance?
Any professional who has a company should have some form of professional liability insurance. 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.
Any company that provides services directly to customers should consider having liability insurance. Even if the business does nothing wrong, someone can still sue them.
Customers expect professionals to have extensive knowledge and training. They also expect services to meet professional standards. If you don’t meet customers’ expectations, they may file a lawsuit to hold your business responsible.
The professional 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.
Various business types benefit from professional liability insurance, including (but not limited to):
- Food trucks
- Dry cleaners
Some states require specific types of businesses to have professional liability insurance. Clients sometimes need any company they work with to have liability coverage, too.
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.
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.
Policy costs vary depending on your business’s industry, 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 professional liability insurance cost are your business’s industry, and the policy limits you pick. On average, the professional liability insurance cost hovers around $1,700 annually for small businesses. The median annual cost is a little over $710 ($60 per month).
Your policy limits are a significant influence on the professional liability insurance cost. The standard limit is $1 million per claim for small businesses. 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 percent of the insurance limit. Your company’s industry and insurance history will determine this.
Your policy is, by nature, designed for your business based on the products and services you provide. Because no two small businesses are identical, no two professional liability insurance costs are, either.
Protect Yourself and Your Business
Getting the right professional liability insurance policy is a simple way to protect your business against negligence claims. 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. It pays to be prepared in advance in the event of a lawsuit, rather than scrambling to catch up.
Here at Camino Financial, we put all our efforts into ensuring there is “No business left behind.” We designed our products and services 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 insurance.
Our products are for entrepreneurs just like you.
You can request a free quote for a business loan now to find out just how much freedom our financial products can offer.