When confronted with various insurance decisions, many ask the question; What’s the difference between general and professional liability insurance. These two seem similar, but serve two different purposes. All companies, regardless of the industry, should carry a general liability plan. Professional liability (Errors and Omissions Insurance) may be required for those in a professional service industry. So let’s take a closer look at each.
General Liability Insurance:
This is usually a small business first step in acquiring insurance. And the most necessary. General Liability is also known as limited liability insurance. It protects the small business owner (and employees) from claims related to property damage, bodily injury, and business-related negligence. This can cover everything from someone tripping inside a store, an employee dropping a heavy box on a client’s head, or even a forklift backing into a customer’s car.
When people file a claim, it generally covers some of the attorney fees, insurance investigations, out-of-court settlements, and any court related judgments. Having this insurance also keeps a business in operation during costly legal proceedings. Even if we win, there’s always a cost. As a small business owner, don’t fall into the trap of incorrectly assuming this is only for high risk businesses like construction or manufacturing. Even low risk companies have been brought down by legal actions. Like they say, accidents happen. And in every business, accidents will happen. At some point.
The type of general liability needed by a small business depends on the kind of small business, as per recommendations by the U.S. Small Business Administration . Things like location, business practices, amount of income, asset type and industry served will determine your needs. Some companies won’t even do business, if you can’t show proof of insurance. Try contacting various insurance brokers and shop around. Yet, keep in mind, that it’s their job is to sell insurance. Sometimes more than the customer really needs. So, do your due diligence beforehand.
Typical quotes include: bodily injury, property damage liability, products completed in operations, medical payments, personal and advertising injury, and damage to premises rented. Cost depends on how the insurance company rates your risk, industry served and policy limits. Here are some average costs for small businesses according to the website Insureon.com: On average, the annual cost of General Liability Insurance, regardless of policy limits, was just $741 (less than $62 per month), with a median price of $428 (about $36 per month). Most small-businesses owners (54 percent) paid between $400 and $600 for their policies. Another 21 percent paid less than $400.
Professional Liability Insurance:
Sometimes it’s referred to as E & 0 because it protects from any errors – what we say, write or do, or any omissions, and what we did not say, do, or write. Think of it as a general liability policy for those who render a service (like lawyers, accountants, real estate agents, notaries, insurance agents, home inspectors, tech providers etc.) There are no standard policies when it comes to professional liability, due to the wide scope of industries covered. However common areas include – provision for negligent professional services, failure to uphold contractual promises or obligations, incomplete or shoddy work, mistakes or omissions made.
For a deeper look let’s go to the Insurance Journal: Errors and omissions (E&O) is the insurance that covers your company, or you individually, in the event that a client holds you responsible for a service you provided, or failed to provide, that did not have the expected or promised results. For doctors, dentists, chiropractor, etc., it is often called malpractice insurance. While lawyers, accountants, architects or engineers, it may be called professional liability. Whatever you call it, it covers you for errors (or omissions) that you have made or that the client perceives you have made…
Most E&O policies cover judgments, settlements and defense costs… In short, E&O coverage provides protection for you in the event that an error or omission on your part has caused a financial loss for your client… Most E&O policies are written on a “claims made” or “claims made and reported” form. This means that any claims must be made or, in some cases, made and reported, within the policy period. These policies have a retroactive date that becomes very important. Claims that arise out of acts committed prior to the retroactive date will not be covered. The farther back the retroactive date, the more coverage provided…
Difference Between General and Professional Liability Insurance
To understand the difference, think of professional liability as protecting from internally generated problems. Mistakes made by those within your company. While general liability protects from problems originating both internally and externally – Mistakes made within your company and events that happened by outside influences.
- General or limited liability is recommended for every business. Because it covers potential litigious events both internal (problems within your company) or external (problems caused by customers or the general public).
- Professional liability covers problems developed internally (errors or omissions made by your company or those related to your company). It stands alone, or is added to other policies. Basically it safeguards professionals who provide services, give advice, recommendations, consultation, write reports, provide program generation, and even the production of certain products.
To find out which one, you need see an insurance broker, attorney or local insurance agent familiar with the industry you serve. For more information check out our 12 small business insurance options.