Do you REALLY need Professional Liability Insurance?
November 18, 2021
As a working professional, you’ve probably heard all the fuss about Professional Liability Insurance—who needs it, how much it costs, and how you shouldn’t practice without it. But have you ever wondered why? And whether or not you really need it?
In case you need a refresher: Professional Liability Insurance protects you (and your business) from allegations of errors, omissions, or negligence committed within the scope of your profession, like breach of confidentiality, poor advice, or failure to render services. For Healthcare Practitioners, that also includes claims of malpractice.
But just how important is it? The truth is: Professional Liability Insurance is vital for all working professionals and businesses. And not just because everyone makes mistakes or because accidents happen. It’s because there are countless practical, not-so-obvious situations when having Professional Liability Insurance on-hand will make or break your business. Read on to find out what they are—and how insurance can help.
1. Insurance might be required by a regulatory body.
Any professional that offers knowledge, skills, or advice to the general public is automatically held to a higher duty of care to act in their client’s best interest and avoid foreseeable harm. And a higher duty of care also means a higher standard of accountability; if the duty of care is breached, you won’t just be held liable for client damages, you’ll also be fined—and possibly disciplined, with your license revoked—by your regulatory body.
In specialized industries, like finances, engineering, and healthcare, where the potential for physical or financial injury is high, Professional Liability Insurance might be a requirement of your regulatory body to protect public interest and ensure compliance with health and safety laws. Without even the minimum requisite coverage, you might be prohibited from practicing at all. So before you write it off, be sure to check with your association about any requirements from regulatory bodies, provincial legislation, or licensing boards.
2. You’ll still have to defend a frivolous claim.
No matter how careful you are, we all know that mistakes and accidents happen, especially if you’re juggling multiple projects at the same time. But keep in mind: clients can be unpredictable and aggressive. And they can sue as long as they believe there’s been an error, even if you’ve done nothing wrong. Sometimes all it takes is a single documentation error, a minor miscommunication, or even a difference of opinion to trigger a lawsuit.
Even if the claim is groundless, you’ll still have to defend. And defending a lawsuit isn’t just time-consuming—it’s costly. Professional Liability Insurance ensures that there will be adequate funds to protect your assets so you don’t have to shell out thousands of dollars for legal expenses, administrative fees, court settlements, and more.
3. The smaller the business, the harder the recovery.
Depending on the allegation, a lawsuit can easily bankrupt a smaller business and have a lasting impact on the finances of a larger one. With fewer resources in tow, SMEs and start-ups are particularly vulnerable to the devastating effects of drawn out litigation and legal fees, even if they end up winning the suit.
Factor in your personal situation and consider the following:
With your funds tied up in court proceedings and legal fees, will you have enough to pay your staff’s salary or put forth the capital to finance a business deal?
Will your company still be able to operate efficiently while you’re busy in court? If your business is a one-man show—if there’s no one else to run your company or pick up the slack—you might have to temporarily shut down.
If you have to shut down, will your business survive the lost income?
Once damages are paid, will you be financially secure enough to get your network up and running again?
Any of the above scenarios might put your company out of commission indefinitely. But Professional Liability Insurance can help fill the deficit so you’re not straining your financial resources or scrambling to make ends meet.
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4. You might risk losing business.
In many industries, particularly in consulting and construction, clients might require Professional Liability Insurance as a condition of contract to ensure that any losses or damages will be covered if a mistake is made. Without proof of coverage, some companies won’t even consider doing business with you, even if you’re a part-time practitioner or a subcontractor.
Even if it’s not mandatory, a Professional Liability Insurance policy can still give you a competitive edge to prospective clients by showing that you’re reliable, reputable, and proactive about risk management.
5. Your staff might make mistakes too.
As you grow your business, you might bring on additional staff, independent contractors, student interns, or even a business partner. But more staff means more room for error—and more potential for claims.
Luckily, Professional Liability Insurance policies are customizable and can be expanded to provide coverage for anyone employed by your company for an additional fee. Simply contact your broker or provider when you’ve hired someone new and add them on as an additional insured.
RELATED: What’s an Insurance Broker, Anyway?
6. You might be sued for past work.
Keep in mind: you can be served YEARS later, long after the event giving rise to a claim has taken place. But if you don’t have insurance when you get sued—even if you had it when the event that caused the claim occurred—you’ll be out thousands of dollars to afford the damages out-of-pocket.
With a continuous Professional Liability policy in place, you’ll be covered whenever a claim is reported, even if you’re not currently practicing, on leave, or retired.
7. Your general liability insurance won’t protect you.
Some clients might require you to have Commercial General Liability (CGL) Insurance as a condition of the job in the event someone is injured or property is damaged. But if you’re sued for running a project long, going over budget, or mixing up files, your general liability policies won’t respond—only Professional Liability Insurance will protect you from that.
What’s the difference? Professional Liability Insurance defends you against mistakes that fall within the scope of your profession, like poor advice or documentation errors. While a client may not have been harmed physically, they might have lost out financially. In contrast, CGL Insurance covers accidents; acts that aren’t necessarily caused by your professional advice or expert services.
Both coverages are equally as important. Because they respond to different exposures, both policies work together to reduce the chances of a gap in coverage and protect you comprehensively from any claims that fall into a grey area.
So do you really need Professional Liability Insurance? Absolutely. We know—we sound a little biased. But any professional that provides advice or service to clients for a fee is at risk of legal action and should at least consider having it in their back pocket.
Don’t know where to start? We can help. With over 40 years of experience of serving professionals across hundreds of industries, you can rely on PROLINK to stay protected in the face of your unique threats. We’ll take the time to listen, understand your business, and align you with a comprehensive plan that suits your professional needs—and your budget.
Plus, as a member of a professional association, you could be saving hundreds of dollars off of standard market rates through one of PROLINK’s group insurance programs. To learn more, connect with PROLINK today!
PROLINK’s blog posts are general in nature. They do not take into account your personal objectives or financial situation and are not a substitute for professional advice. The specific terms of your policy will always apply. We bear no responsibility for the accuracy, legality, or timeliness of any external content.