Do consultants need professional liability insurance?
Professional liability insurance (also known as errors and omissions insurance) is an especially important insurance coverage for consulting professionals.
Consultants are known for two things: advice and expertise. You’re responsible for helping grow and improve a client’s business. Protection against professional errors and mistakes is crucial because client expectations can run high. If you’re in a consulting role and your advice isn’t sound, you could be sued.
Protecting yourself with a good safety net right away is important
There is always a gray area when it comes to the perception of your performance. You never know when a devastating lawsuit could alter the life of your consulting career– but if you have the right insurance, you’ll be all right.
Insurance may be a requirement in your contract
Many contracts will require that you carry professional liability because adequate coverage reassures your client that you can handle financial losses if you are found responsible for a mistake.
If you’re helping people get their business in order for a living, they’ll expect you to have yours in order as well. As the saying goes, “Practice what you preach.”
You should have professional liability insurance even if you’re not formally required to
Because of the nature of your work, there is always a risk that a client will be unhappy. Even a small mistake could cause harm to a company and result in financial losses or a damaged reputation.
And when something goes wrong on a project, terminating a contract won’t feel like enough to many clients. That’s why many of these situations wind up in court to resolve their grievances for damages.
What is professional liability insurance?
Professional liability insurance gives you protection from the risk of lawsuits that arise as a result of your professional services or advice.
Professional liability insurance protects consultants from professional errors, negligent services and failure to deliver promised services. Anything from non-disclosure breaches, trade secrets, negligence or poor advice to things as simple as missing deadlines or making data entry mistakes.
What does professional liability cover?
Whether it’s your fault or not, at some point a client may claim that your work was wrong, incomplete or negligent – or that you all-around failed to perform to the industry standard. That’s when your policy would kick in to help pay for the cost of court, attorney’s fees, settlements and any awarded judgements.
Even if the incident was out of your hands, the policy would save you from paying out of pocket for the cost of defending yourself in court, which can be extremely expensive.
A professional liability insurance policy will give you peace of mind that you’ll have an ample safety net if someone decides to slap a lawsuit on you.
Professional liability insurance is a claims-made coverage.
It’s important to understand that this product only gives you protection while the policy is current – so you need to make sure you have it while you’re working on a project and after the project is finished.
Often, a client won’t make a claim until much later, and if your policy is no longer active, your insurance company usually won’t cover you. For this reason, most consultants try to keep a professional liability insurance policy active throughout their career to make sure they have coverage when they need it.
Transitioning to a new policy: Tails and prior acts coverage
Be careful of “coverage gaps” when transitioning between policies. You probably want to buy “tail” coverage if you are thinking about getting a new professional liability policy.
With tail coverage, you will be protected after your previous policy ends. That way, if a past client makes a claim against you, you’ll be protected for those events that have already happened but haven’t yet been reported.
If you are considering changing policies, definitely check with your agent first.
How much is professional liability insurance for consultants?
The average cost of professional liability insurance for a business consultant is around $850 a year. The median cost is around $720 a year, and most people choose a $1 million limit plan.
One of the worst things about getting sued (besides the fact that you’re getting sued) is all the costs that come with it. Lawyers aren’t cheap, and neither is going to court, so it’s better to mitigate that risk by having insurance protection.
Paying for the coverage can be much less expensive than paying for the unknown down the road.
Setting up a professional liability policy
We’re here to help. Talk with a Pogo agent to figure out coverages and how to meet the requirements of your client contracts. We can help you adjust your plan based on how many people you want to cover and the types of risks you need to insure against.
Your goal is to help your clients solve problems and increase productivity, and our goal is to provide your business coverage so you can be protected if something happens.
Ready to protect your business? Get a free estimate.