The basics

What is professional liability insurance?

Professional liability insurance (aka errors and omissions insurance or E&O insurance) is insurance that protects you in the event that a client claims your business was negligent, made a mistake, or failed to deliver a promised service. In other words, it’s protection against an unsatisfied client.

Who needs professional liability insurance?

If you get paid for providing services or expert advice to clients, E&O insurance is probably something you’ll need. If something goes wrong on one of your projects, it could quickly result in a lawsuit against your business. Even if you’re technically not at fault.

36-53%
Of all small businesses are involved in at least one litigation per year.

Why do you need it?

Lincoln once said, “You can please some of the people all of the time, you can please all of the people some of the time, but you can’t please all of the people all of the time.”

The same goes for the clients you work with. It’s important to deliver your best work but it’s equally important to have asset and integrity protection when it comes to your business, as well as defense and damage coverage should you get sued.

Coverage highlights

Failure to deliver promised services
This refers to making a commitment or promise and then not delivering on that promise for whatever reason. For example, your marketing campaign didn’t boost sales as promised. Or your computer crashed and you lost the final designs of your client’s new packaging, delaying the launch of their product.
Negligent services
This is when your client thinks your work doesn’t meet professional standards. It’s subjective, but you can still have a suit filed against you for it. This could even pertain to things that are out of your control, like if you had important client files on an external drive, and someone swiped it.
Professional errors
Think of mistakes made by your business that could cause your client to lose money or suffer a loss. If they think you, or your work, hurt their business or reputation in any way, they could file a suit. Maybe you were in a mad rush to the finish line and forgot to check some of the images your client sent you. You only find out they were someone else’s images after you’re being sued for copyright infringement.
Court costs
Professional liability helps pay for the costs associated with legal actions from unhappy clients, even if you have done nothing wrong. Failure to defend yourself can result in a “default judgement” (which means you have to pay what they say you owe).

Cost coverages include getting an attorney, judgements and settlements, and miscellaneous court costs.

Price factors

How much does professional liability insurance cost?

On average, low-risk businesses can expect to pay somewhere around $600 a year. However, the cost of professional liability insurance can vary based on the following factors:

The kind of work you do

For example, someone working in technology has a higher risk of monetary loss than a data entry professional.

Where you live

Insurance rates vary by state, and some are more expensive than others.

The number of claims your industry has filed

If the people in your industry haven’t filed many claims, the insurance company will price risks lower due to good performance.