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In America, professional liability insurance (PLI) is most commonly referred to as E&O or errors and omission insurance. It is commonly used by companies whose business is to provide clients with a service or their expertise rather than a physical product. For example, if you develop a website for a client but they decide the site doesn’t fulfill its purpose, E&O insurance covers you in the event the client sues you.
Who Could Use Professional Liability Insurance?
Again, if the “product” you sell could be described as your expertise, you might be interested in an E&O policy. This includes:
- Financial advisors
- Insurance agents
- IT consultants
- Software developers
Of course, the field is not limited to these professions. It is not a policy required in America, but numerous European countries require E&O insurance for self-employed professionals.
Why Do You Need a PLI Policy?
Business insurance policies can start to feel redundant because many of them sound similar. In reality, each offers specialized coverage and services. General liability insurance is the most common business policy, because it protects companies against lawsuits brought by third parties (i.e. non-employees) due to injury and property damage. PLI policies also protect you in the event of a third-party lawsuit, but their coverage focuses on claims that are harder to prove – or disprove.
Professional liability policies protect you when clients claim negligence, that you failed to live up to your contract, or that your work was incomplete or lackluster. In addition, some contracts require a PLI policy.
How Does Professional Liability Insurance Protect You?
There are three main ways a PLI policy protects you and your business.
If you make a mistake
If you fail to deliver
You’re deemed negligent
Everyone makes a mistake once in a while; it’s the price of being human. But, some mistakes cost more than others. If one of your mistakes costs a client money, that client may sue you. Your professional liability policy helps cover not only the cost of any settlement or judgment, it also helps pay legal fees.
Sometimes, things don’t work out quite the way we plan. If you tell a client they can expect X but instead they get Z, and especially if results are part of the contract, the client may sue. Your PLI policy helps cover those losses.
If you fail to meet acceptable standards for your field, you may be deemed negligent. In legal terms, that means “unreasonably careless” and it could lead to a lawsuit. Accounting errors, malpractice suits, financial mismanagement, and more may qualify as negligence.
How Does PLI Coverage Work?
These policies typically cover you against claims made while the policy is active. If you’re sued and the policy is no longer active, even if the alleged incident occurred during the life of the policy, you rarely have coverage.
The average E&O policy costs around $1,700 per year, but rates vary depending on your business’s level of risk. Low-risk industries come in much lower, around $600 per year.
If you’re ready to learn more, give us a call at 480-391-3883. Or, fill out our contact form and we’ll get back to you as soon as possible.