Understanding Professional Liability Insurance for Consultants

It is important to get professional liability for consultants. They offer professional advice to individuals and organizations that could lead to potential claims if there is something off or wrong with the information. Getting a policy in place will pay for claims that arise, including the legal defense needed in the case. 

What is Professional Liability Insurance?

Professional liability insurance is a type of commercial insurance policy that pays for claims that arise from not professionally conducting your service business. This could mean contractual liability or giving professional advice that is deemed incorrect or damaging. Claims may be for losses incurred and the legal defense defending the allegations. It is recommended that consultants get a professional liability policy to protect their assets in the event of a claim. 

Types of Liabilities Faced by Consultants

The types of claims that can happen range from professional errors to overspending. Let’s take a closer look. 

Professional Errors

Professional errors coverage is a strategic benefit of a professional liability policy. You can be held liable for any damages incurred when you make an error in your advice. For example, a consultant working on a supercomputer may give the client the incorrect temperature at which the supercomputer needs to be kept to prevent overheating. This can result in damage to the unit and a significant loss in equipment and downtime. The consultant would be liable for the damages.  

Negligence

Negligence is the failure to take proper care when doing something. For example, a consultant may overlook giving a client a key detail about a merger acquisition that could lead to a bad investment. This negligence is a liability for the consultant, who might get sued by the client for failing to bring an important detail to the client’s attention. 

Misrepresentation

Consultants are expected to represent themselves and represent details in an honest and truthful manner. A claim can arise with the professional liability policy if they don’t. For example, a consultant may not have the experience in a certain sector but creates a bio that suggests that he does. This is misleading clients who will think that they are getting an expert in the field when they are not. 

Missed Deadlines

Missed deadlines can cost a client a ton of money. This is why consultants are held accountable for meeting project deadlines and milestones. Regularly missing deadlines could lead to a claim on the professional liability policy. 

Overspending

In some cases, a consulting business may be authorized to bring on a team or to oversee certain costs of a project. The consultant is expected to remain on budget with their spending. Overspending is considered reckless by the business and will lead to a claim on the policy. 

Key Features of Professional Liability Insurance for Consultants

Let’s look at the key features of a professional liability insurance policy for a consulting business. 

Coverage for Errors and Omissions

The primary feature of the professional liability policy is coverage for errors and omissions. This is why these policies are also referred to as errors and omissions policies (E&O). This is coverage in the event that the consultant makes a mistake or omits a key detail. 

Legal Defense and Claim Settlement

The legal defense and claim settlement is a key feature of the professional liability policy. This means that the policy will pay for a legal defense and then pay the claim settlement to the client’s business. It is important to note that the legal defense is paid separately from the policy limit, meaning it is above and beyond what the policy limit would cost, which is very important since legal fees can be extremely high.  

Policy Limits and Deductibles

It is important to understand the limits and deductibles of your policy. The deductible is what you pay in a claim and the higher the deductible, the lower your premium will be. The policy limit is the cap the policy will pay for a claim to a client business. Remember that legal fees do not count toward the policy limit. So, if the limit is $100,000, $20,000 in legal costs would be paid, plus the $100,000 in settlement costs if that is the result of the case. 

Benefits of Having Professional Liability Insurance

There are benefits to having a professional liability policy for your consulting business. First, it helps enhance your credibility with clients. Clients get reassured knowing that you have a policy protecting them should something go wrong. This may help you get more business. It also gives the business owner financial protection and peace of mind when conducting business. Even the best consultants can make a mistake; this policy protects their finances from being hit in the event that there is a claim. Some clients may require a consulting business to have a professional liability policy. Each client is different and you’ll need to demonstrate proof of insurance if this is a contractual obligation. 

How to Choose the Right Professional Liability Insurance

When choosing a professional liability insurance policy, you’ll want to take the time to assess your risk and needs. This starts with understanding your revenues and potential consulting failures that can lead to a claim. The higher the risk, the more insurance you’ll want to get. Once you know what you need, shop the policy around among carriers. Start with where you have your general liability or business owners’ policy,  as you may get a discount for bundling policies. Be sure to compare policies that have the same coverage options. Talk to the insurance agent about policy exclusions. It is important to understand what isn’t covered by the policy you’re buying. 

Cost of Professional Liability Insurance for Consultants

Let’s look at the cost of professional liability insurance. According to Progressive, the median monthly cost of a policy is $42 per month. This will range based on several factors. 

Factors Influencing Insurance Premiums

The factors that affect your professional liability insurance policy are: 

• Location: where you are will affect your price because some locations are more prone to claims than others. 
• Company revenues: The more revenue you generate, the more your policy will cost since your risk goes up with more business. 
• Company safeguards: Using safeguards such as clear contracts and agreements will help keep your costs down. 

Strategies to Lower Insurance Costs

You can keep your policy costs down when you:

• Shop policies around to new insurance carriers
• Use detailed contracts that outline your responsibilities
• Keep claims down by being upfront and honest with clients

Protect Yourself With Professional Liability Insurance for Consultants

Take the time to learn what the best professional liability policy is for you. Our experts can help.