Do you need professional liability insurance?
If your business offers expert advice or provides professional services, you should strongly consider professional liability insurance to protect your company from costly lawsuits. Here’s why you may need this coverage, when it’s required, and how it can safeguard your business.
Why you may need professional liability insurance
You started your business to follow your dreams and part of doing good business is pleasing your customers. However at some point, an unhappy customer could claim that your mistake, negligence, or oversight cost them money.
If that happens, you could face legal action over your client’s financial loss. Even if there’s no truth to the accusations, you could still be on the hook for costly legal bills.
Without the right business insurance coverage, a legal battle can quickly drain your business of money, time, and resources. That’s where professional liability insurance comes in.
Also known as errors and omissions insurance (E&O) or professional indemnity insurance, professional liability insurance coverage protects your company from expensive lawsuits concerning the quality of your work. It covers any legal fees, settlements, and court-ordered judgments.
How does professional liability insurance protect you?
A professional liability insurance policy will pay the costs of lawsuits over:
- Errors or oversights
- Claims of negligence
- Missed deadlines
- Undelivered services
- Incomplete work
- Budget overruns
- Breach of contract
Many service-based businesses buy this coverage along with general liability insurance. General liability coverage shields you from common business risks such as:
- Third-party bodily injury
- Third-party property damage
- Copyright infringement, libel, or slander
However, these aren’t the only liability risks professional services businesses face. Cyber risks are a real threat to tech and IT companies – especially those who store sensitive data or manage clients’ IT systems or security. A data breach at a client’s business or your own could damage your reputation and your bottom line.
While a standard professional liability policy won’t cover the costs of a breach, technology errors and omissions insurance (tech E&O) will. Tech E&O is very popular among tech businesses, because it combines professional liability coverage with cyber liability insurance.
Cyber liability insurance comes in two forms – first-party cyber liability coverage and third-party cyber liability coverage.
First-party cyber liability insurance protects you from the high price of a cyber incident or data breach at your own business. This policy will cover the cost of:
- Cyberextortion payments
- Investigating and fixing the cause of a breach
- Customer notifications
- Customer credit and fraud monitoring
- Crisis management and public relations
- Regulatory fines and penalties
Third-party cyber liability insurance, on the other hand, protects you from lawsuits over a data breach at your client’s business. If you recommended, developed, installed, or managed a product for the client, they could blame you for the breach. If they do, third-party coverage pays for:
- Attorney fees
- Settlements and court judgments
- Other court costs
Who should consider professional liability insurance?
Any business that offers expert advice or provides a service to customers would benefit from professional liability insurance, including:
- Computer repair businesses
- IT consultants
- Cybersecurity companies
- Software developers
- Project managers
- Web designers
- Public speakers
- Interior designers
For example, let’s say you’re an IT consultant hired to help a client choose and implement a new call tracking software for its sales team.
If the software fails, the company could hold your consulting company responsible for any resulting downtime or lost revenue and take you to court. You’ll need professional liability insurance to save you from having to pay all of the legal fees, court costs, and settlements out of pocket.
Or imagine that you’re a web designer who creates a new website for a real estate company. The client’s web manager later tries to make some changes to the site, disrupting the site’s functionality in the process.
The company wrongly accuses you of creating a faulty website and files a lawsuit. Even though you did nothing wrong, you still may have to pay expensive legal defense costs – unless your professional liability insurance covers them.
When do you need professional liability insurance?
States require professional liability insurance for certain occupations, like financial services, lawyers, or healthcare professionals, as part of their professional licensing requirements.
While your business may not be legally required to carry a professional liability insurance policy, you may still need this coverage if:
- You offer services (like cybersecurity) that put you at high risk of being blamed for a data breach or a professional error that causes a client financial harm.
- Your clients demand you to carry this coverage as part of the client contract.
- Your business partners require you to have coverage before they’ll work with you.
Even if you don’t have any contracts that require this type of insurance, you should still consider buying a policy. It not only safeguards your business from risk, it also reassures prospective customers that they’ll be taken care of if you make a costly error.
How much does professional liability insurance cost?
Most small tech business owners choose to purchase technology errors and omissions insurance. The cost of a tech E&O policy varies based on:
- Your policy limits
- Your deductible
- The size of your business
- The types of risks your business faces
About 71% of small businesses pay less than $100 per month for coverage. The majority of businesses opt for a policy with a $1 million per-occurrence limit and a $1 million aggregate limit.
How much you’ll pay will depend a lot on the risks you face, along with the limits and deductibles you choose.
For many tech companies, professional liability insurance is just as essential as their general liability insurance policy. The important thing is to make sure you have the right amount of coverage based on your needs and your risk management budget.
Our expert insurance agents can help you determine the types of coverage that are right for your business to protect you from risk and give you peace of mind. Chat with a TechInsurance agent today to get started.
