The Average Cost of Professional Liability Insurance: All You Need to Know

The Average Cost of Professional Liability Insurance: All You Need to Know

As a business owner, your relationship with your clients is delicate. One mistake could lead to losing them, getting a bad reputation, or worse, facing lawsuits alleging negligence or misconduct. As we all know, lawsuits are an expensive hassle. To defend yourself, you have to pay legal fees, and if you’re found liable, you will have to pay settlement fees.

All these fees can take so much out of your finances that it leaves you unable to run your business. But worry not, this is the worst-case scenario. You can protect yourself with professional liability insurance. In this blog, we demonstrate the costs of a professional liability insurance policy on average.

 

What is Professional Liability Insurance (PLI)?

Professional liability insurance, also known as professional indemnity insurance, is a type of business insurance. It helps businesses that interact customers, providing services or products. PLI provides financial protection if your clients file lawsuits alleging negligence, misconduct, and failure to deliver services as promised. For some professions, like real estate agents, PLI is known as errors and omissions insurance.

 

When Is Professional Liability Insurance Required?

Accountants, lawyers, and physicians are some of the professionals that might require professional liability insurance. For example, if an accountant makes an error that results in the client losing money, the client may file a negligence lawsuit.

Another example is a physician misdiagnosing a patient, leading to severe health complications. A real estate agent might unintentionally forget to disclose a property defect, forcing the new homeowners to pay expensive repair costs.

These are all errors that happen to most businesses. Without professional liability insurance, you might have to pay expensive settlement and legal fees. But if you have PLI, all you have to pay is your monthly premium and the insurance company will cover you in such a situation.

 

What Does Professional Liability Insurance Cover?

Professional liability insurance coverage includes instances of negligence, misconduct, and failure to deliver services.

Examples of what’s included in professional liability coverage:

  • Mistakes, errors, and oversights in services provided
  • Undelivered services
  • Missed deadlines
  • Negligence or failure to meet standards
  • Breach of contract

Examples of what PLI doesn’t cover:

  • Employee injuries (Covered by Commercial general liability insurance)
  • Employee discrimination lawsuits (Covered by Employment practices liability insurance)
  • Vehicle business use (Covered by Commercial auto insurance coverage)
  • Bodily injury (Also covered by Commercial General liability insurance)
  • Business property damage (Covered by Commercial general liability insurance)
  • Customer injuries or damages (Covered by general liability insurance)

 

Why Purchase a Professional Liability Insurance Policy?

We’ve established before that lawsuits claiming negligence can be expensive. It might be a small mistake you, a business partner, or an employee made that cost you a lot of money to settle. And even if it didn’t cost much, you still pay for lawyer fees and lose work time while the lawsuit is in motion.

Having professional liability insurance significantly cuts costs in that case. All you have to do to get protection is pay a monthly premium. Once you get served by the court, you can file a professional liability claim with your insurance company to cover legal fees.

 

 

Benefits of Having Professional Liability Insurance in Canada

 

  • Firstly, having PLI makes you seem more professional as clients expect you to carry that type of insurance. To them, it provides a safety net for your business operations. If you don’t have one, your clients can expect you to stop a project anytime to pay for a lawsuit settlement.

 

  • The second benefit is that it helps when you can’t rely on your contract for protection. Contract provisions can get routinely challenged and don’t always protect you if a client files a lawsuit against you.

 

  • Finally, it’s fairly common for clients to file lawsuits against professionals and service providers. If they’re unsatisfied, many will not hesitate to take legal action. It’s a risk that lies in the back of your head as long as you’re operating. However, if you already have professional liability insurance, you get peace of mind knowing a lawsuit won’t be an obstacle in the way of your business operations.

 

Professional Liability Insurance Cost Breakdown

Before we dive into the cost of professional liability insurance, let’s discuss the factors that help insurance companies determine the cost.

 

What Determines Professional Liability Insurance Costs

1- Industry and Profession

Some industries pose a higher risk for insurance companies than others. As a rule of thumb, if you’re more likely to file an insurance claim, you will get a higher insurance premium. An example of a high-risk professional is a medical practitioner.

One wrong advice from a doctor can result in great health damage. In comparison, a consultant is at less risk, which typically lowers their insurance premiums.

2- Coverage Limits

A coverage limit determines the amount of financial coverage you get in case of a claim. A per-claim policy limit is the amount of money your insurance company pay per claim. If the limit is $1 million, that’s the maximum amount of money you will get.

An aggregate limit is the total amount of money the insurance company will pay per policy year. The higher the coverage limit you and your insurer decide on, the higher the premium you pay. Bear in mind that some businesses require more coverage limits than others.

3- Claims History

Statistics show that making claims increases the possibility of making more claims in the future. To insurance companies, the reoccurrence of claims means your business has a recurring problem that might be a potential cause for lawsuits. That’s why insurance companies look at your insurance history when determining your insurance cost. You will get a lower insurance premium if you maintain a clean record.

4- Business Size and Revenue

A big corporation with a large number of employees is at more risk of a claim. Because there’s a large number of people, there’s a bigger chance of errors, omissions, and acts of negligence. So, companies with a larger number of employees get higher premiums.

Similarly, a high gross revenue indicates that the company is involved in many activities that put it at risk of more errors and claims. That’s why big businesses with higher revenues and larger employee counts pay a higher premium rate.

5- Geographical Location

The geographical location of the business is also an important factor in determining the cost of professional liability insurance. Businesses in big cities generally get higher premiums because of higher litigation rates, strict provincial Regulations and Requirements, high operational costs, and claim rates. For example, if you operate your business in the big city of Toronto, you will get a higher professional liability insurance quote than a business operating in Edmonton.

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6- Policy Terms and Deductibles

Your policy terms, like coverage limits, policy duration, and what you include or exclude in the policy are all price factors. A big corporation might require a policy with a high coverage limit and more coverage than a small business because they have more needs and poses a greater risk for insurance companies.

Deductibles are also a factor. A deductible is the amount you pay out of pocket before the insurance company steps in. The higher the deductible, the less monthly premium you’re required to pay. Big companies may be able to pay a big deductible at any point a lawsuit arises, but small companies might not afford that. That is the one factor that gives big companies an advantage when it comes to lowering the price.

 

What is the Average Cost of Professional Liability Insurance?

The average annual professional liability insurance cost for a small business is between $500 and $1500. It all comes down to the industry and the risk factors.

As for sole proprietors, they are expected to pay between $400 and $800 per year, depending on the type of work they do and the claims history. Finally, medium to large businesses pay anywhere between $2000 and $5000.

As we mentioned, the industry plays an important role in the cost of professional liability insurance. Here are some industry-specific prices:

 

How to Save Money and Get the Best Professional Liability Insurance Policy?

If you own a business, you likely need professional liability insurance. It’s one of the necessary costs to keep your business standing for a long time. Luckily, there are ways to cut the costs of professional liability insurance and save money. Here are our top tips.

 

1- Implementing Risk Management Strategies

The right risk management strategies signifcantly reduce the amount of errors that happen. And it will show your insurance company that you are a low-risk client, potentially decreasing your premium rate.

2- Shopping Around for Quotes

We recommend getting multiple quotes from different insurers to compare prices and coverage options. That way you can find the best deal and save money instead of paying more for coverage you don’t need. Hiring an insurance broker might help you as they can do all the research for you and get you different deals, based on your individual needs.

3- Bundling Insurance Policies

Many insurers reward clients for buying multiple policies by offering them a discount. You could get other types of professional liability insurance, like general liability or property insurance bundled with your professional liability insurance.

Another option is getting the Business Owner’s Policy (BOP) package, which includes different types of business insurance under one policy. It’s cheaper to get the package than each policy separately.

4- Maintaining a Good Claims History

A good claims history might qualify you for a discount, especially if you’ve never filed a claim before. Through careful practice and good risk management, you can minimize the risk of having to file a claim. If a small dispute arises between you and a client, we recommend you settle it without going to court and trying to maintain good communication with the client to solve the issue amicably.

 

Professional Liability Insurance is a business-saver that most industries can’t go without. If you find yourself in need of one, don’t hesitate to contact our insurance brokers. At EasyCover, we specialize in different types of business insurance. Our goal is to help businesses worry less and grow more. Get in touch now!