Businesses, whether small or large, often face various risks, and having the right insurance coverage is essential to protecting against potential lawsuits or liabilities. The two types of liability insurance that can protect your business in a time of need are general liability insurance and professional liability insurance.
Ideally, a business must have both coverages as they protect against different scenarios. Let’s deep dive into the two coverages to understand them better.
What is professional liability insurance?
Professional liability insurance, also commonly known as errors and omissions (E&O) insurance, provides coverage to businesses for claims related to mistakes, negligence, inadequate work, or failure to deliver on services promised to the client.
This insurance covers the financial losses that your customer might suffer due to poor performance or advice, incomplete work or missed deadlines.
Some scenarios in which your business would need E&O insurance are:
- Professional error: A software developer deploys an erroneous code with a security vulnerability that leads to a data breach, resulting in their client facing fines and lawsuits.
- Missed deadline: An architect fails to meet the deadline to submit building plans to the city council, causing the client’s construction project to be delayed.
- Flawed professional judgement: A financial advisor recommends their client an investment strategy that ignores some important risk, resulting in significant portfolio losses.
Read more: I’m a freelancer – do I need freelance insurance?
Who needs professional liability coverage?
Here are some examples of businesses that could benefit from a professional liability insurance coverage:
- Healthcare providers like doctors, therapists, labor/birthing coach, personal support workers
- Legal services providers like notary, lawyers, attorneys, legal counsel or advisors
- Consulting and marketing services like graphic designers, freelance writers
- Real estate agents, salespersons, brokers
- Personal finance advisors like investment advisors, tax preparers
- Insurance agents
- Technology professionals like software developers, cybersecurity professionals
What is general liability insurance?
General liability insurance, also known as commercial general liability insurance or business liability insurance, is a coverage that protects your business against accidental property damage and bodily injuries to others.
It covers any physical risks that can result from your business operations. You might need commercial or general liability coverage in the following scenarios:
Bodily injury: Equipment at your gym or fitness studio malfunctions, injuring a client during their workout. Alternatively, ice falls on your business walkway, causing a delivery person to slip and get injured.
Property damage: Your landscaping equipment damages the driveway of your client’s home.
Copyright infringement: Your company website uses stock photos without purchasing proper copyrights from the original photographer. Or your promotional video uses unlicensed footage from another published video.
Advertising injury: Your social media post erroneously misrepresents your competitors’ products.
Products liability: Your beauty product causes an allergic reaction to multiple customers.
Medical payments: A client’s child gets injured while playing in your office waiting area and needs immediate medical attention.
Who needs general liability coverage?
General liability coverage is a must have for all businesses, even though it is not mandatory. This insurance is crucial for:
- Retail stores
- Restaurants and food service businesses
- Construction companies
- Manufacturing facilities
- Property management companies
- Businesses with a good foot traffic, or companies that interact with customers on site
- Service-based businesses with physical locations like beauty salons, nail bars, spa, massage parlors
Professional vs. general liability insurance: Which is better for you?
While it makes sense for some businesses to have both coverages, it might not be necessary for others.
You need to decide what coverages your business needs based on unique factors such as having a physical store location, a large advertising unit, or high foot traffic. The best way to determine which insurance coverage to buy is by working with an insurance expert and conducting a risk assessment.
For instance, a health and wellness salon that works with Registered Massage Therapists would need both general liability insurance and professional liability insurance. On the other hand, a cybersecurity business owner who works from home may only need to have professional liability insurance.
The three factors you need to keep in mind while making this choice are:
- Focus of the coverage: Professional liability covers financial losses from professional services, while general liability covers physical injuries and property damage.
- Timing of the claims: Professional liability covers claims filed during policy period, while general liability covers incidents that happen during policy period.
- Nature of the risk: Professional liability covers intangible risks like advice and services, while general liability covers tangible risks such as physical damage and bodily injury.
How much does it cost?
Your insurance premium is determined by the size of your business, the type of coverage you need, your location, exposure to risk, claims history and the size of your payroll.
On average, personal liability insurance can cost about $250 a year and covers $100,000. But for some businesses, this might not be enough.
The cost of general liability insurance, on the other hand, varies based on factors like your industry and how long your business has been running. Typically, small to medium-sized businesses pay around $450 per year for a policy with a $2 million limit.
Remember, insurance is there to protect you from unforeseen circumstances, and it is better to have it than not, especially if you land in a situation where you have to pay out of pocket. It is recommended that you consult with an insurance professional to determine the right coverage for your business.
