Professional Liability Insurance
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Professional liability insurance for the self-employed and independent contractors

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Professional liability insurance

Professional liability insurance, also called errors and omissions insurance, protects small businesses against the costs of client lawsuits over unsatisfactory work.

Why do independent contractors need professional liability insurance?

Professional liability insurance, also called errors and omissions insurance (E&O), is essential for independent contractors who offer expert advice or a professional service. This policy:

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Provides financial protection against lawsuits

If a client files a lawsuit over the quality of your professional work, this policy can cover your legal costs. For example, if a construction contractor is sued for project delays, professional liability insurance could cover their legal costs.

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Helps you comply with the law

Depending on your type of work, state laws might require you to carry professional liability insurance. For example, real estate agents often need this coverage. Lawyers and healthcare professionals might need to carry malpractice insurance – another term for this policy.

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Fulfills client contracts

Your clients might ask you to produce a certificate of insurance as proof of professional liability coverage, or include it in the terms of a freelance contract.

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Boosts you above the competition

Clients might choose to hire an independent contractor who has professional liability coverage over one who is uninsured.

How does professional liability insurance coverage protect independent contractors?

Professional liability insurance covers the legal costs of lawsuits over the quality of your work, including:

  • Failure to deliver promised services
  • Professional negligence
  • Poor, incorrect, or incomplete work
  • Mistakes and oversights

This policy also protects against false allegations. For example, a client might blame an architect for a structural flaw caused by the client's own choice of materials. Professional liability coverage would pay for the architect's legal defense if the case went to court.

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How does professional liability insurance work for the self-employed and independent contractors?

Sole proprietors and independent contractors can be held responsible for errors and oversights that financially harm their clients. If a client files a lawsuit, professional liability insurance covers your legal expenses, including a settlement or judgment.

If you don't have coverage, the businesses you work with might have to take on your legal costs – which is why they want you to be insured. For example, say an event planner hires your catering business for a client's convention and someone claims they got food poisoning. The client could name both parties in a professional liability lawsuit. If your catering company doesn't have coverage, the event planner might end up paying for your legal costs, including a settlement or judgment.

A professional liability certificate of insurance gives your business partners and clients peace of mind, and may lead to them choose you over an uninsured competitor.

How much does professional liability insurance cost?

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Professional liability insurance costs a median of $59 per month. Your cost is based on a number of factors, including:

  • Your type of work and risk factors
  • Coverage limits and deductible
  • Business income
  • Day-to-day operations
  • Claims history

What is the difference between professional liability and general liability insurance?

General liability and professional liability insurance both protect against common independent contractor liabilities, but cover two different types of lawsuits.

General liability insurance covers basic lawsuits that any business could face. It kicks in when a third party sues you over bodily injuries incurred on your business premises, damage you caused their property, and advertising injuries (slander, libel, and copyright infringement). General liability coverage could include attorney's fees, court costs, and settlements or judgments.

Professional liability insurance focuses specifically on lawsuits that stem from professional services. It shields you from third-party lawsuits alleging you failed to uphold contractual promises, provided incomplete or substandard work, or made mistakes or omissions that caused financial harm.

Learn more about the difference between professional liability and general liability insurance.

Does your professional liability policy cover contractors hired by your business?

Unlike general liability insurance and some other policies, businesses and sole proprietors cannot extend their E&O coverage to independent contractors or subcontractors by naming them as an additional insured on their professional liability policy. Instead, contractors must purchase their own insurance.

What other types of small business insurance do independent contractors need?

Small business owners and independent contractors should consider additional business insurance policies, including:

Commercial auto insurance

Every state requires this coverage for vehicles that are registered to a business, or the ability to compensate someone in case of an auto accident. In the event of an accident, an independent contractor's commercial auto policy would cover the legal bills, medical expenses, and property damage.

For the self-employed and independent contractors, your personal auto insurance might not cover you when you drive your own vehicle for business use. If you drive your personal vehicle for work, you should consider hired and non-owned auto insurance (HNOA) to make sure you're protected.

Commercial property insurance

Commercial property insurance offers financial protection for your workspace and its contents, and is often required by landlords to sign a lease. If you own or rent a workspace, or if you have expensive equipment, inventory, and other business assets, commercial property insurance would help pay for the repair or replacement if your business property is stolen, damaged, or destroyed.

General liability insurance

A client or another third party could get injured at your workplace, or you could damage their property. These situations can result in expensive lawsuits. If you operate your business out of your home, it’s unlikely that your renter’s or homeowner’s insurance would cover this.

Independent contractor general liability insurance gives you financial protection from such third-party accidents.

Business owner's policy

If you intend to buy both general liability and commercial property coverage, you can reduce your insurance costs by bundling them into a business owner’s policy (BOP). It combines both coverages under one policy, and usually has lower insurance premiums than buying each policy separately from the insurance company.

Workers' compensation insurance

Workers' compensation covers medical costs and lost wages from work-related injuries and illnesses. It’s required in most states for businesses that have employees. Some independent contractors are required to have this coverage to work in riskier professions, such as roofing and building trades.

People who work for themselves and don’t have any employees generally aren’t required to have workers’ comp insurance, but it's still a good idea to carry coverage. Health insurance can deny claims for work-related injuries, which means you could end up facing medical bills and lost income while unable to earn a living.

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