Professional insurance protects service providers from liability lawsuits.
Doctors and other health-care professionals are always at risk of having their methods questioned. Accountants can be sued if the numbers they crunch get their clients in trouble with the IRS. A lawyer can be sued if a client believes the attorney didn't properly defend his case. Professional insurance is a safeguard against the damages of insufficient service claims.
Professional Liability Insurance
In the case of a lawsuit filed against you because the litigant is injured or doesn't think you took proper precautions as a professional in your field, professional liability insurance helps pay the fees to defend yourself and covers some of the damages if a judgment is ordered against you. You could be ordered to pay medical bills or repair damages to property.
Reducing Liability
Many business owners try to incorporate to avoid liability. This strategy doesn't completely shield the individual from personal liability. In "Working for Yourself: Law and Taxes for Independent Contractors, Freelancers," Stephen Fishman writes that even if the business is incorporated, without professional insurance coverage, all of the assets from the business can be seized to satisfy a court judgment. Malpractice or negligence claims are based on personal responsibilities as a professional providing services to the public.
Client Expectations
Some clients expect service providers to have professional liability insurance. For example, independent house cleaners have to be licensed, bonded and insured before homeowners or businesses will give them access to their premises. In professions such as these, being insured separates legitimate professionals from aspiring part-timers.
State Law
Some state laws make it mandatory for certain professionals to be covered under an insurance policy. This is also known as "errors and omissions coverage." In "Community/Public Health Nursing Practice," Frances A. Maurer and Claudia M. Smith advise that in some fields, such as nursing, even if insurance isn't required, professionals who are obligated to the public as health providers and liaisons between government and judicial systems shouldn't just rely on the insurance coverage provided by the firm they are working for. They should purchase complementary insurance.
Cost of Coverage
Depending on the industry, a professional could end up paying hundreds to thousands of dollars a year in coverage. If you work in a profession with high claim rates, your insurance premiums may be higher than average. Maurer and Smith write that professionals should look for either an "occurrence" policy, which provides protection while the professional is insured even if claims are filed many years later, or "tail coverage," which extends the policy to cover any claims that were reported after the termination of the policy, regardless of cost.
Tags: insurance coverage, liability insurance, professional liability, professional liability insurance, service providers