Read our complete guide to find out everything you need to know about professional liability insurance for your contracting business.
- What is professional liability insurance?
- What does professional liability insurance cover?
- How much does professional liability insurance cost?
- How much professional liability insurance do I need?
- How do I get professional liability insurance?
What is professional liability insurance?
Professional liability insurance is a type of liability insurance specifically for those providing professional services or advice (e.g., general contractors, engineers, plumbers, etc.) that provides financial protection for your business if you are sued by a dissatisfied client for work errors, undelivered work, misrepresentation, or negligence. Professional liability insurance is important for contractors who perform any kind of design or construction management work. Additionally, if any of your subcontractors perform design work, you’ll also want to have professional liability insurance.
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What does professional liability insurance cover?
While your commercial general liability insurance protects your business if your work causes property damage or bodily injury, it does not provide protection for any economic losses your clients may experience due to your work. Your clients could still sue you for their economic or financial losses, which is where professional liability insurance steps in.
Professional liability insurance provides protection against lawsuits arising from:
- Work errors or mistakes
- Failure to do what was promised
- Undelivered or uncompleted work
- Actual or alleged negligence
- Violation of good faith and fair dealing
- Inaccurate advice
With professional liability insurance, you’ll be covered for any judgments against your business for these types of lawsuits, as well as the costs for legal defense against these claims. This insurance covers you, your business, your employees, and independent contractors while they are working for your business.
Example: Your business is hired to design and build a loading dock for trucks to unload at a warehouse. After the project is complete, the client discovers the height of the loading dock is too low for trucks to load efficiently. Due to a design flaw, the loading dock that was built does not meet the specifications in the contract. Your business would be responsible for the cost to rebuild the loading dock to the contract specification. Since no bodily injury or property damage occurred, this would not be covered by general liability insurance. However, professional liability insurance would cover your business.
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How much does professional liability insurance cost?
The cost of professional liability insurance depends on a number of factors, including the type of business you run, your industry, coverage limits, location, and number of employees. While the range of pricing can vary widely, most small business owners can expect to pay annual premiums between $400 and $1,000.
How much professional liability insurance do I need?
For most small businesses, a $1 million per occurrence and $1 million aggregate limit in professional liability insurance is appropriate, but this is highly dependent upon your industry and the risks your business faces.
How do I get professional liability insurance?
There are many factors to consider when purchasing professional liability insurance—from the financial strength of an insurer to the pricing that you’re offered. Professional liability insurance is a fairly custom product, as coverage and risks differ from business to business, so it is particularly important to select an insurance provider that can build custom coverage to fit your specific business needs.
When selecting an insurance company, there are three main factors you should look at:
- The financial strength of the insurer
- Reputation for customer service
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