Owning a business has its risks and rewards. The rewards include independence, the ability to determine your own future. However, the unexpected awaits. While most unexpected events in business are opportunities to improve your business, some surprises can make you grateful that you have proper levels of professional liability insurance coverage.

What is Professional Liability Insurance or Errors and Omissions Insurance?

You’re probably familiar with General Liability Insurance and know it protects your business against liability involving bodily injury or property damage.

You can think of General Liability Insurance as a basic business policy.

Moving beyond the basics, many businesses should also carry Professional Liability Insurance. This coverage, also called Errors and Omissions coverage or Professional Indemnity coverage, covers your business for some specific risks that are not covered by your general liability policy.

On a broad level, the coverage protects against errors and omissions, which is how it earned one of its many names. Professional liability insurance protects your business against the actions of owners or employees, or their inaction, their inadvertent omissions.

Maybe while advising your customer, an important point was missed as the conversation drifted. Maybe an important point was simply not understood by the client as well as you’d hoped. Either of these examples could result in errors and omissions liability or a claim.

What types of businesses need professional liability insurance?

If it’s your business to advise others as a professional, you have risk and should consider purchasing Professional Liability Insurance.

Service providers and advisors such as those in the following groups should consider this important coverage:

  • Insurance agents
  • Accountants
  • Financial Advisors
  • Lawyers
  • Consultants
  • Technicians
  • Contractors
  • Electricians
  • Dentists
  • Optometrists
  • Doctors
  • Other professionals

For doctors, the coverage is called Malpractice Insurance, and coverage is required by law in most states.

You may also encounter some clients who require that you have professional liability insurance as a prerequisite to doing business. This requirement is more common with general liability insurance but also occurs with professional liability insurance.

Even when not required by law, purchasing professional liability insurance makes good business sense for service related businesses or those who provide advice to clients or customers.

Maintaining best practices keeps your business prepared for the best or the worst.

Keep a checklist of important items to discuss with every customer. Be thorough and document your conversations with clients, noting what was discussed, what was accepted, and what was declined. If your business is sued for an error or omission, you have your documentation you can show the court to defend your business against the lawsuit. This habit reduces most of your professional risk, but not all risk. Even if there is no claim, documenting conversations with clients is a useful business practice.

Don’t Skimp on Coverage Limits

Consider your coverage limits carefully. Risks vary by industry, but also by customer size and type. Additionally, small businesses are particularly vulnerable. If a Fortune 500 company is sued by a client for a million dollars due to an error or omission, that million-dollar lawsuit won’t break the company. The same million-dollar judgement can be the end for a smaller company.

If maintaining a larger coverage limit increases premiums to a higher level than budgeted, you can usually lower your premium by choosing a higher deductible. By assuming some of the risk yourself, the monthly or annual cost of your insurance policy is reduced. However, if there is a claim, you are responsible for the deductible amount. In effect, you are partially self-insuring. Your business assumes the small risks. Your insurer steps in to cover the larger risks.

To Err is Human.

Everyone makes mistakes once in a while, whether business owners or employees. Even the most careful of businesses, those who follow a tried procedure, can have exposure. Errors can happen when you’re short-staffed or through a simple oversight. Professional liability coverage is there to protect you if an error or omission affects others.

Discuss your business insurance needs with a business insurance agent.

Discuss your specific needs and exposures with your insurance agent. Be sure your agent understands the nature and scope of your business. Most insurance agents understand the basic needs of businesses, but not all agents work with businesses every day. Some agencies specialize in insurance for individuals and families as opposed to servicing commercial clients.

Ask your agent about their experience in providing insurance for businesses. Also be aware that some major insurers are more committed to business lines than others. Business insurance is a specialty item, and some insurers don’t make business lines a priority. The agency that wrote the insurance policies for your home or your car may not be the best place to source insurance for your business.

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