The topic of professional liability insurance has come up on a couple podcast episodes lately (bounce house rentals and loan signing agents), so I reached out to the pros at Insureon to learn a bit more.
This contribution comes from Rebecca Hosley, a content writer for Insureon, the industry leader for online small business insurance.
She lives in Chicago, and enjoys volunteering at Lincoln Park Zoo in her spare time.
Take it away, Rebecca!
When building up your side hustle, it’s natural to focus your attention on getting more leads, developing your business, and boosting productivity. However, it’s also important to make sure you’re taking steps to protect the income you’re working so hard to grow.
The work you do may be a side hustle, but it’s crucial that you still treat it like a business since you are vulnerable to many of the same issues full-time business owners face. One way to do that is with business insurance policies, including professional liability insurance.
Professional liability insurance, also known as errors and omissions insurance, can cover expenses related to legal action by clients who claim you made a mistake or failed to deliver products or services.
Nick’s Notes: “Errors and Omissions” insurance was the kind of insurance loan signing agent Brian Schooley had to buy for his side hustle.
Without the protection offered by professional liability insurance, one lawsuit has the potential to wipe out everything you’ve worked so hard to achieve.
What is Professional Liability Insurance?
Professional liability insurance is a way of protecting yourself against a lawsuit if you are ever sued over a professional mistake.
This policy can pay for your legal expenses if a client claims you:
- Failed to deliver services as promised.
- Were negligent while providing professional services.
- Delivered work that was late or incomplete.
- Included errors in a completed project.
For example, you may have seen the story in the news a few years ago about the singer Rihanna suing her accountant, Peter Gounis, for giving her bad financial advice that caused her to lose millions. Most likely, Gounis filed a professional liability claim with his insurance company.
Otherwise, he would have been forced to pay all the legal expenses himself, in addition to the $10 million in damages he agreed to pay to settle the case out of court.
It’s unlikely your work will result in a lawsuit filed against you by a millionaire pop star. However, if you offer any type of professional service, you could benefit from professional liability insurance.
What Does Professional Liability Insurance Cover?
If you have professional liability coverage, your insurance company can pay for a lawyer to defend you in court. A policy can also pay for many other legal incidentals, including:
- Expert witness testimony fees.
- Court costs.
- Administrative fees.
- Settlement costs or court judgments against you.
Does My Business Really Need Professional Liability Insurance?
There’s no cut-and-dry answer to this question. It depends on what you do, and the likelihood that the type of services you offer could result in a lawsuit or legal action.
Insurance is about managing risk.
Whether or not you think you need it depends on:
- how comfortable you feel with your level of risk
- how likely you are to be sued by a disgruntled client
- your ability to pay legal costs without it
For example, let’s say you give cello lessons a few hours a week. Teaching someone how to play an instrument is a professional service, but a student probably won’t sue you for the quality of your instruction.
However, if your side hustle is a computer repair business, there is a much greater chance that a mistake could result in loss of revenue for a business client. That client could attempt to take you to court to recoup financial losses, which would be covered up to your policy limit with professional liability insurance.
Here’s a look at how professional liability insurance could apply to some common side hustles.
Bloggers / Freelance Writers
Whether or not you need insurance coverage depends on what type of writing projects you take on.
Professional liability insurance is most relevant for bloggers and freelance writers who work on high-profile assignments with higher fees. For example, working on projects for major corporations or news organizations increases your chances for a lawsuit since the stakes become higher.
In 2017, freelance journalist Yashar Ali was sued for defamation by Fox News host Eric Bolling after Ali wrote an article for Huffington Post detailing allegations that Bolling had sent inappropriate messages to several colleagues. Professional liability insurance could potentially cover legal expenses for Ali in this case.
Web design projects often take several weeks or months to complete and, depending on scope, they can cost thousands of dollars.
If there’s an issue or disagreement between project requirements, there could be legal action. Professional liability insurance can protect web developers if a client sues over a variety of issues, ranging from a missed deadline that affects revenue to a work error that negatively impacts the business.
Nick’s Notes: My wife and her partner carry insurance for their photography business just in case something goes so horribly wrong they have to pay to host another wedding!
People who sell goods and services on their own website or through sites like Amazon and eBay often need insurance, but it’s not always a professional liability policy.
Those who sell products online typically opt for product liability insurance, which can pay court costs if they’re sued over a product that resulted in illness or injury. This coverage is often included in general liability insurance policies.
How Much Does Professional Liability Insurance Cost?
Insurance companies look at several factors when determining how much to charge for a particular policy, but the most important one is risk.
For example, if you write greeting card copy, you’re probably going to pay less for insurance than if you work as a personal trainer. While someone may roll their eyes at a groan-worthy pun in a card, they’re a lot less likely to sue you than someone injured during a workout with their trainer.
In 2017, small business insurance company Insureon analyzed data from more than 18,000 businesses to get an idea of how much people are paying for professional liability insurance. It found that the average cost is $1,735 per year for a small business of less than 10 people, while the median cost is $920.
However, the majority of Insureon’s customers paid less than $1,000 per year, with a third paying between $400 and $800 for coverage. That works out to between $33 and $66 per month.
It’s important to keep in mind that many of these costs are for businesses that include at least a few employees. If you work alone, your costs could be even lower, depending on your line of work.
How to Choose the Right Insurance Company
Finding cheap business insurance is probably one of your top priorities, but it’s also important to make sure you are getting the right level of coverage – and from a trustworthy provider. Spend some time doing your research and comparing a few companies and quotes before signing on the dotted line.
To make sure you are dealing with a reputable insurance company, check out reviews from sites like the Better Business Bureau.
Another option is A.M. Best, which provides ratings and financial information on insurers and the insurance industry. You have to create a username and password, but doing so gives you free access to ratings for hundreds of insurance carriers.
Getting Professional Liability Insurance Quotes
When you’re ready to start getting quotes, you have a couple of options.
The traditional method is working with an insurance agent. There are two kinds of agents:
A captive agent can only sell policies from one insurance company, while an independent agent can represent multiple insurance companies. Both options have advantages and disadvantages.
Captive agents are likely to know the policies they sell inside and out since they only work with one company.
Independent agents may not have as much detailed knowledge about each individual policy, but can present you with several quotes to review.
Of course, you can also get quotes and purchase policies entirely online as well.
Is It Worth It?
Professional liability insurance is definitely an added expense, and one that may be tough to consider taking on when you are just getting your side hustle up and running. However, be sure to weigh the cost of paying for a policy versus a lawsuit that could potentially bankrupt you.
When you look at it that way, professional liability coverage can seem like a bargain.