Professional Liability Insurance

General or Professional Liability Insurance – Which is the Most Important Policy?


Insurance is an essential part of owning a business. You have probably heard the term “Professional Liability” insurance as a business owner. This is however, not the most commonly known policy compared to General Liability or Commercial Auto policies. Over these next few paragraphs we will outline what the Professional Liability policy covers and why you should consider obtaining one for your small business.

A lot of business owners understand the value of obtaining some level of insurance protection. However, professional liability is an important starting point that all business should obtain. If your business offers professional consulting, advice or services, such as architects, accountants, landscapers, interior design, and more, professional liability insurance is the logical starting point. Freelancers and consultants including copywriters, engineers and others should also obtain professional liability as they begin their own businesses.

Let’s review what this type of policy covers.

In short, a Professional Liability policy protects your business from third party lawsuits due to error or negligence. This policy covers investigation fees, court-related fees, and attorney fees. This policy will also cover any and all judgements or settlements that have been awarded to plaintiffs during potential litigation.

An important item to remember is that you don’t have to be found guilty on any charges for this policy to work for you. Even if you end up winning the lawsuit, or it is determined to be baseless, the policy will still cover investigation and defense costs.

Let’s clear up some confusion that many clients typically have about General Liability policies. This policy does not cover professional mistakes. This error occurs when people use the term “liability” loosely to describe both policies. Yes, both are liability policies, but they both cover completely different kinds of claims. When purchasing a “liability” policy, be sure to double check to see what kind of liability policy it is and exactly what it covers.

So, beyond the name, what is the basic difference between General Liability (or also called Business Liability) and Professional Liability Insurance?

As its namesake suggests, the General Liability policy covers general claims. This would include covering costs if somebody slips and falls in the office, slander, copyright infringement, etc. However, this claim does not include anything to do with your actual service. If you are a CPA, making financial mistakes with client accounts is not covered in the General Liability policy. This is due to the fact the claim is about your specific job expertise.

It’s clear to see that having the right type of coverage is crucial to avoid uncovered situations.

What do you do if you have an uncovered claim? If you have an uncovered claim, you are going to have to pay for the lawsuit out of pocket. Litigation and lawsuits are quite costly. Attorney fees hover around $375 per hour alone. Due to this factor alone, a lawsuit can destroy a business and consume personal capital quickly – even if you’re found innocent.

When you own a small business, every dollar counts. It is always a hard decision to take on another expense in the form of additional coverage, but, when you compare the microscopic monthly expense of obtaining professional liability insurance vs the thousands of dollars in legal fees, the investment simply makes sense.