Everything you need to know about professional liability (E&O) insurance. Understand who needs it, what it covers, how much it costs, and how to choose the right policy for your profession.
What Is Professional Liability Insurance?
Professional liability insurance, also known as Errors and Omissions (E&O) insurance, protects professionals and businesses against claims of negligence, errors, or failure to perform professional duties. Unlike general liability insurance (which covers physical harm), professional liability covers financial losses caused by your professional services or advice. If a client claims your work was incorrect, incomplete, or caused them financial harm, this insurance covers legal defense costs and settlements.
Who Needs Professional Liability Insurance?
Any professional who provides services or advice should carry E&O coverage. This includes accountants and financial advisors, architects and engineers, attorneys, consultants (management, IT, marketing), doctors and healthcare providers (medical malpractice), insurance agents, IT professionals and software developers, real estate agents, and therapists and counselors. Even if you have not made an error, defending against a frivolous lawsuit can cost $50,000-$100,000 or more in legal fees.
How Much Does Professional Liability Insurance Cost?
Average annual costs by profession: consultants and IT professionals ($500-$2,000), accountants ($1,000-$3,000), architects ($2,500-$5,000), real estate agents ($300-$1,000), attorneys ($2,000-$10,000+), and physicians ($5,000-$50,000+ depending on specialty and state). Costs depend on your profession and risk level, years of experience, revenue and number of clients, coverage limits and deductible, and claims history.
Claims-Made vs. Occurrence Policies
Most professional liability policies are claims-made, meaning they only cover claims filed while the policy is active, regardless of when the error occurred. This differs from occurrence policies that cover incidents during the policy period regardless of when the claim is filed. With claims-made policies, you need to maintain continuous coverage. If you cancel or switch policies, you should purchase tail coverage (also called an extended reporting period) to cover claims filed after the policy ends for work done during the policy period.
Disclaimer: This calculator provides estimates only. Actual insurance rates depend on many factors including your specific situation, location, and insurance provider. Contact a licensed insurance agent for accurate quotes. This is not financial or insurance advice.
Frequently Asked Questions
What is the difference between professional liability and general liability?
General liability covers physical injuries and property damage (a client trips in your office). Professional liability covers financial losses from your professional services (incorrect advice, errors in deliverables). Most businesses need both types of coverage.
What does E&O insurance cover?
E&O insurance covers claims of negligence, mistakes or omissions in work delivered, failure to deliver services as promised, missed deadlines, and breach of contract. It pays for legal defense costs (even for groundless claims), settlements, and court-awarded damages up to your policy limit.
Do I need professional liability if I am an LLC?
Yes. While an LLC protects your personal assets from business debts, it does not protect the business itself from professional liability claims. A lawsuit can consume business assets, force closure, and in some cases pierce the corporate veil. E&O insurance protects both the business and your livelihood.