If your business provides professional services to other businesses or industries, you may need Professional Liability Insurance (also known as Errors and Omissions Insurance or E&O Insurance).

This Ultimate Guide will explain what Professional Liability insurance is, who needs it, what it does—and doesn’t cover, as well as scenarios that benefitted from carrying a Professional Liability insurance policy. We’ve also made some recommendations for finding the best options for Professional Liability Insurance in the marketplace to assist with your decision.

What is Professional Liability Insurance?

Professional Liability Insurance protects small businesses when a client claims negligence or substandard work, and any subsequent financial loss, by  covering the cost of lawsuits or legal action.

What Does Professional Liability Insurance Cover?

Professional Liability Insurance covers your work, your work product, missed deadlines, budget overruns, or other claims of professional negligence.

What Doesn’t Professional Liability Insurance Cover?

Professional Liability Insurance policies do not provide coverage for warranties or product guarantees. Additionally, Professional Liability Insurance does not cover accidents, bodily injury claims, damages to commercial property, or any illegal acts. There are other  types of insurance products designed for these situations.

Although Professional Liability is a standalone product, be sure to ask your broker about bundling additional liability insurance into your policy to ensure there are no gaps in your coverage.

Who Needs Professional Liability Insurance?

In short, business owners that sell their expertise or services should consider E&O insurance. Businesses from Information Technology (IT) consultants, attorneys, marketing companies, web developers, realtors, to financial services, or any other business that provides a specialized service would benefit from carrying Professional Liability Insurance.

A Professional Liability Insurance policy can help cover the legal expenses that arise from a negligence claim if you unintentionally miss a deadline, make omissions or mistakes, provide unsatisfactory work, go over budget, or provide unqualified guidance.

What are Some Instances of Professional Liability?

• An accountant forgets to file a client’s taxes on time and omits other necessary documents. In this case, the accountant was negligent in his professional capacity, liable for errors and omissions, and any financial damages to his client for the oversight.
  
• An engineer makes a critical miscalculation in a building’s plans that causes structural failure years after the fact. The cause of the building’s failure lead back to the engineering firm where the plans originated, and they are held liable for the damages.
  
• A website developer misses a launch date set to coincide with a trade show event. Moreover, the site does not perform to the functional specifications submitted at the onset of the project. The web developer's inability to complete the work on time, or to the expectations means he would be liable for the incomplete work and breach of contract, among other things.

In all of  these circumstances, the service providers would be held responsible for their negligence and all would be covered in a Professional Liability Insurance policy. Without it, many of these businesses would be forced to shutter their doors under a mountain of legal debt.

Who Doesn’t Need Professional Liability Insurance?

Generally, businesses that provide products or non-professional services–like retail and restaurant businesses–don't need it. However, if you provide a physical product as a service, like a wedding florist or a photographer, you might want to consider carrying a Professional Liability Insurance rider.

How Much Does Professional Liability Insurance Cost?

Like all insurance premiums, there are variables affecting the price. The type of work you do, the service you provide, and your level of expertise are major factors. On average, plan on spending between $500 and $1000 per year, per employee.

Where Can You Get Professional Liability Insurance?

Professional Liability Insurance is available from numerous insurance providers —brick and mortar as well as online. We've partnered with Next Insurance and their rates start at just $25 per month. Use our partner link to get a free quote.

Learn more about 12 other types of insurance. Take a look at our Ultimate Guide to Selecting Business Insurance.

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