The Cost of Professional Liability Insurance

Professional liability insurance helps protect you from paying out of pocket for legal, settlement, and judgment costs if somebody accuses your business of making a mistake that harms them or causes them to lose money. The cost of professional liability insurance depends on several factors, including your industry, business size, and claims history. 

This article explains what professional liability insurance is, why you need it, the factors that determine its cost and the average costs, and ways to reduce the cost of professional liability insurance. 

Professional Liability Insurance

Professional liability insurance helps cover legal and settlement costs if your business is accused of making a mistake or providing inaccurate information. You may also hear professional liability insurance referred to as errors and omission insurance or E&O insurance.

Professional liability can help cover the following situations:

• Negligence claims. This is when someone accuses your business of failing to take appropriate action to protect them from known risks. For instance, let’s say your company makes snack bars in a facility that processes nuts. If you fail to include that information on the label, a customer could sue you for negligence. Another type of negligence is medical malpractice. Medical malpractice is when healthcare workers make an error that harms a patient. Medical malpractice liability insurance is a form of professional liability insurance that protects healthcare workers.
• Breach of contract. Professional liability insurance can help pay for legal costs if you fail to deliver promised results. For example, let’s say a handyman signs a contract to repair a customer’s front door within a month’s time. If the handyman is unable to complete the work on time, the customer could sue him for breach of contract. 
• Inaccurate information. Professional liability insurance can help cover legal costs or settlements or judgments associated with providing inaccurate information. For instance, a personal trainer who sells digital workout plans that contain incorrect instructions for performing the exercises could be sued for providing false information. 

Any small business owners who provide services or offer advice should strongly consider purchasing professional liability insurance, as it keeps them from paying out of pocket for legal defense fees and settlement costs. 

Factors that Affect the Cost of Professional Liability Insurance

So, how much is professional liability insurance? Well, it depends on your unique circumstances. Factors affecting the cost of professional liability insurance include your field, business size, and coverage limits, among others.

Let’s take a look at some of the factors that influence the cost of professional liability insurance. 

Profession and Level of Risk

Your industry and role within it impact the price of your professional liability insurance premium. Generally, the more people you interact with, the more risk your line of work carries, and higher risk means higher premiums. Certain industries are also riskier than others due to the nature of their services.

For instance, real estate agents have to talk to many people and give advice about purchasing property, while a mural painter won’t typically spend a lot of time with other people or provide extensive advice. A real estate agent would likely have higher premiums than a mural painter, as they tend to have more customers and offer higher-risk services.

Business Size and Revenue

The number of employees you have and the amount of money you bring in each year will impact the cost of your professional liability coverage. The more employees you have, the higher the chance one of them will make a mistake, and the more your revenue grows, the more your premium increases. 

Claims History

Insurance companies look at your claims history when determining your premium. Businesses with a lot of claims will likely pay substantially more for professional liability insurance than those with no prior claims.

Coverage Limits and Deductibles

Some states require certain professionals (such as healthcare workers, lawyers, and real estate agents) to carry professional liability insurance. Whatever coverage limit you choose, that amount will affect your premium. Typically, the more coverage you get, the more your insurance will cost. 

A deductible is how much you pay before your insurance kicks in. If you have a lower deductible, you will pay a lower amount before your insurance starts paying than you would with a high deductible. However, the lower your deductible, the higher your premium will be.

For example, let’s say you have a $500 deductible, and a client sues you for negligence. You would have to pay $500 of the legal costs to defend against the claim, and then your insurance would pay the rest (up to your coverage limits).

Average Costs of Professional Liability Insurance

So what is professional liability insurance average cost? Due to the number of variables that affect insurance costs, the answer to this question depends on your unique business needs and your insurance provider. However, we compared the professional liability coverage rates offered by three top insurance providers Next, Hiscox, and Progressive to get an idea of starting and average costs. 

Next	Hiscox	Progressive
Starts at $18.34/month	Starts at $22.50/month	Average cost of $57/month

The average price of professional liability coverage depends on your industry, location, and policy details.

Industry-Specific Costs

How much is professional liability insurance for consultants? What about professional liability insurance for teachers? The cost of professional liability insurance depends in part on your industry. 

For instance, while both professions involve some degree of risk, dog walkers tend to have less professional liability risk (and potentially lower premiums) than financial advisors, as financial advisors’ clients can potentially lose a lot of money if they follow bad advice.  

Similarly, a classroom elementary teacher teaching a state-approved curriculum will likely have lower professional liability risks than a personal development coach selling a self-produced course. 

State-Specific Costs

The amount of your professional liability premium depends in part on your location. Professional liability insurance typically costs more in states with higher legal fees. 

Policy-Specific Costs 

What’s included in your individual policy will affect its cost. For instance, if you need other types of insurance (such as general liability insurance) and decide to bundle policies, your total premium may be higher than professional liability insurance on its own, but you could save money overall by combining coverage.

You can also purchase additional coverage (known as endorsements) as needed. An extended reporting time endorsement is a common professional liability insurance add-on that allows you to report claims retroactively (after your policy expires). 

5 Ways to Reduce the Cost of Professional Liability Insurance

There are several steps you can take to reduce the cost of professional liability coverage, including implementing risk mitigation strategies and increasing deductibles, among others.

Let’s look at a few effective tactics for lowering the cost of your professional liability premium.

Step 1: Mitigate Risk

The more you can do to minimize your risk, the less likely you are to have to actually use your professional liability insurance. Risk mitigation strategies can include:

• Double-checking your work
• Only signing contracts that you know you can deliver on time
• Making sure your staff is well-trained
• Enrolling in risk management courses

Make sure to document any risk reduction or risk management tactics you use, as some insurance providers may offer you a discount for implementing these strategies.

Step 2: Shop Around for Quotes 

You can call insurance providers directly for quotes or contact an insurance brokerage or individual broker to get quotes from multiple companies.

Step 3: Bundle Insurance Policies 

One of the best ways to save money on your premium is to bundle policies. Small business owners often purchase a business owner’s policy (BOP), which is a combination of policies designed to ensure maximum coverage.

A BOP typically includes business property and liability coverage, but can be customized to suit your company’s unique needs

When purchasing a BOP, you may be offered professional liability or general liability insurance. The difference between professional liability insurance vs. general liability insurance is that general liability insurance offers protection for bodily injury, damage to other people’s property, and claims of advertising or reputational harm, while professional liability insurance protects you from claims of negligence or professional mistakes. You can lower general and professional liability insurance costs by bundling these policies. 

Other types of policies you might consider bundling include:

• Workers’ compensation–helps cover medical expenses and lost wages if an employee gets injured at work
• Commercial auto–helps pay for damage from car accidents
• Data breach–helps pay for costs associated with recovering from a data breach, such as credit monitoring services for affected parties
• Business income–helps cover lost revenue if your business is forced to temporarily close

Step 4: Increase Deductibles 

Some people choose a higher deductible so that their premiums will be lower. However, keep in mind that with a higher deductible, you will have to pay more out of pocket before your insurance kicks in. 

Step 5: Maintain a Good Claims History 

Implementing risk reduction and risk management strategies can help keep your claims history low. The more claims you have, the higher your premiums tend to be.

Conclusion

Professional liability insurance is essential for anyone who provides a service or advice, as it helps protect you from paying out of pocket for legal fees and settlement costs arising from claims of business mistakes. 

There are several factors affecting the cost of professional liability insurance, including:

• Industry and profession
• Risk level
• Business size and revenue
• Claims history
• Coverage limits
• Deductibles
• Location

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