Have you ever asked yourself what could happen to your business if you’re faced with a lawsuit due to negligence? How would you save your company from bankruptcy? Well, this is a question that almost all professionals should think about.
Professional and consulting service providers need to be protected against claims that are not included in general liability insurance. Remember, a single liability can bring your business to its knees.
To that end, you’ll have to buy a professional liability insurance policy to protect your business from the threat of bankruptcy.
Understanding Professional Liability Insurance
Also known as "errors and omissions" insurance, professional liability insurance covers you and your business against claims of negligence. This can be due to the professional services you offer as well as the advice you give. Professional liability insurance will come to your rescue if a client claims that they have incurred financial loss due to your advice, error, or omission and decides to sue.
Professional liability is a special insurance policy and is not always included in business owners’ policies, homeowners’ insurance, or general liability policies. Professional liability insurance will cover any legal fees as well as any damages awarded up to your coverage limits.
As such, if your business involves providing professional advice, recommendations, or even professional service to your clients, such a policy will come in handy.
What is Bankruptcy?
You’ve probably heard about bankruptcy. But have you taken time to think about the effects it can have on the affected businesses?
Bankruptcy is a legal process in which a judge examines both the assets and liabilities of a business that have difficulty in settling their bills to see how well they can help manage them. In other words, it can be a way where businesses end their operations and liquidate their assets in a better way.
Bankruptcy laws are aimed at giving businesses struggling financially to start over again. In such an arrangement, those companies are no longer be obligated to pay their debts.
How Can Professionally Liability Insurance Save Your Business from Bankruptcy?
To get a better idea of how professionally liability insurance can protect your business from bankruptcy, we’ll need to look at what it does.
Typically, an errors and omissions insurance policy will cover you and your business against claims due to negligence, errors, and omissions during the policy period. In general, claims that arise from incidents that happened before the policy became effective will not be covered. You can, however, buy a policy with a retroactive date coverage.
Remember, most policies will not cover you or your business against claims due to negligence and as such, will not compensate for any legal fees due to such incidents.
Also, those policies will not compensate you for any liabilities not listed in your policy. As such, they may not cover liabilities due to technical issues, such as data breaches that may not be listed in your policy.
Here are some things that are covered by the professional liability insurance policy:
- Negligence claims
- Legal fees
- Copyright infringement
- Personal injury, for instance, libel or slander
- Claims and damages
- Claims due to services offered
As you can see, all these claims can impact negatively on the financial situation of your business. Without proper coverage, these claims can affect your business operations leading to bankruptcy.
Who Needs Professional Liability Coverage?
Depending on your state, you may be required to purchase professional liability insurance if you operate certain businesses. What’s more, some clients will require you to have this kind of insurance before they do business with you.
As such, businesses that provide services to businesses directly will want to get a professional liability policy. They include:
- Banking and Financial Services Companies
- Health Care Facilities and Providers
- Technological Businesses
A customer can sue for undelivered services, negligence, missed deadlines, or even bad advice. Professional liability insurance will cover these claims, including privacy violations up to the policy limit.
Claims from such incidents are not just costly, but time-consuming as well. With proper professional insurance coverage, your business will be covered from those costly claims and defense expenses if a client decides to sue.
Liabilities Not Covered by Professionally Liability Insurance
- Fraudulent acts
- Property damage and bodily injury
- False advertisement
- Employment issues
As such, you’ll still need to get other business insurance policies, including general liability, to help cover against such claims.