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What is Professional Liability Insurance?
Professional Liability Insurance, also known as Errors and Omissions (E&O) Insurance or Professional Indemnity Insurance, is essential for protecting businesses and professionals from financial losses due to claims of negligence, errors, or omissions in the services they provide. Whether you're a contractor, consultant, or a large financial institution, having tailored Professional Liability Insurance ensures you're safeguarded against potential lawsuits that could otherwise devastate your business.
Insurance for professional liability is a form of commercial insurance that protects employees, directors, officers, as well as the entity itself, from financial loss driven by a monetary demand, lawsuit, or other form of financial recourse due to services offered to the person or entity bringing forth such liability. It is also referred to as Professional Indemnity Insurance (PI).
Insurance for Professional Liability is offered in various countries around the world and can be mandatory for certain industries driven by regulatory requirements. In various instances, investors, customers, or suppliers, may require a business to purchase Insurance for Professional Liability in order for them to shield themselves from errors and omissions done by the management of such business.
Tailored Coverage for Various Industries
Professional Liability Insurance isn't one-size-fits-all. Each industry requires a tailored approach to coverage:
- Franchisors: Professional Liability Insurance for franchisors, a specific type of franchisor insurance, addresses the unique risks associated with franchise operations.
- Financial Institutions: Fund managers and financial advisors benefit from Professional Liability Insurance designed specifically for financial institutions, offering protection against claims related to their financial services. Learn more about financial institutions insurance.
- Healthcare, Technology, Manufacturing, and all other industries require that the professional liability coverage match their operational risks.
This is simply due to the fact that every business within every industry has a specific set of services they offer to customers, and professional liability insurance must therefore be tailored to such services. In fact, the policy wording will define professional services and such definition must be reworded to include the specific services offered by the insured.
Key Sections of a Professional Liability Insurance Policy
Understanding the key sections of your Professional Liability Insurance policy is crucial:
- Insuring Agreement: This section outlines the coverage provided, ensuring that your Professional Liability Insurance protects against the specific risks your business faces.
- Definitions: Critical terms such as "Wrongful Act" and "Professional Services" are defined here, shaping the scope of your coverage.
- Exclusions: Be aware of what’s not covered. The exclusions section details situations where your Professional Liability Insurance won't apply.
As shown below, these 3 sections of the professional liability insurance policy must be reworded to ensure relevant protection is afforded to the business.
Disclaimer
This content is independent of any content coming from insurance brokers, insurers, law firms, or insurance lobbyists. Commercial insurance is rarely taught in schools, and when it is, it’s mostly done through the lens of brokers or insurers. There are many misconceptions around Insurance for Professional Liability, like many other topics in commercial insurance, due to bad habits acquired through over reliance on insurance brokers or insurers or information providers who are lobbied by them.
It is also important to note that insurance has both an operational aspect and a legal aspect, on which we put weights of 95% and 5% respectively in terms of importance to protecting a business and its investors (the point is that going to court to enforce coverage defeats the purpose of buying insurance, so you want to make sure that whatever insurance you buy protects your organization right and pays out fast on large losses).
Professional Liability Fund
A professional liability fund can have one of several meanings depending on the intent and as follows:
- A fund that purchases and subsidizes professional liability insurance for its members;
- Professional liability insurance for an investment fund;
- A fund sponsored by an insured to self-insure the risk of professional liability risk, which is a form of liability risk.
Professional Liability vs. General Liability insurance
While both Professional Liability Insurance and General Liability Insurance are critical for business protection, they serve different purposes:
- Professional Liability Insurance: Specifically covers liabilities arising from the services you provide. It's essential for professionals and entities whose work could lead to claims of negligence or failure to deliver services as promised.
- General Liability Insurance: Covers more general business risks, such as bodily injury or property damage, unrelated to the professional services you offer.
Professional Liability Insurance Costs
The cost of Professional Liability Insurance varies widely depending on the nature and size of your business. For individual contractors, Professional Liability Insurance might cost a few hundred dollars annually, while large corporations, like banks, could pay millions. A general guideline is to budget around 2.5% of your desired coverage limit for your Professional Liability Insurance premium.
Contact Us for Professional Liability Insurance
Ready to secure your business with tailored Professional Liability Insurance at a lower cost? Contact us today to get started. As the world’s #1 Liability Risk Manager, we guarantee you the best coverage and compliance at an unbeatable price.