General Liability vs Professional Liability Insurance

Getting your head wrapped around Professional Liability Insurance vs. General Liability Insurance will help you on your insurance purchasing journey.  

When you own a business, you’re taking a risk that your investment of talent, time, and money will pay off.  

Using insurance to transfer some of the biggest risks is a wise business planning decision.

Business could not be done if a way to transfer unknown catastrophic risk via insurance was not available.

 Insurance companies help mitigate that risk by taking some of it off you as the business owner and putting it on themselves.

There is no shortage of professional indemnity insurance policies you can purchase, but most people can get away with one or two policies, depending on their business and industry. 

If you’re wondering if you need Professional Liability insurance vs General Liability insurance, you’ve come to the right place.

What Is General Liability?

General Liability protects your business against claims of bodily injury or property damage brought against it by a 3rd party. 

Who is a 3rd party?  That can be a customer, a vendor, or just a member of the general public who happens to claim injury or property damage due to your businesses’ negligence.

This policy is also commonly referred to as a business liability policy.  

That is a bit misleading because the policy doesn’t pick up every kind of business liability, only the most “common” kinds.  

In a General Liability business insurance policy, coverage is triggered when the insured business or person causes bodily injury or property damage to a third party. 

For example, one of your employees accidentally knocks over a client’s table, damaging it and a laptop that was on the table.

 Or, you trip over a table and accidentally knock one of your client’s employees over, breaking their arm and putting them out of work for a few weeks.

Exclusions apply to this policy type and they vary by company, so make sure you read through and understand what’s covered and what’s not before you buy.

General Liability vs Workers Comp Liability Insurance for Businesses

All General Liability policies will have broad exclusions against coverage for injuries sustained by employees of the insured company.  

This is because the Workers Comp system has been set up to handle these injuries.

Every state except Texas requires employers to purchase some form of Workers Comp liability insurance for their employees.

Also known as Workers Compensation or Workman’s Comp, these policies give employees coverage for injuries they sustain while working for the company owners.

The business owner can rest easy by knowing the sole remedy for employees to pursue in gaining medical and lost wages payments is through the Workers Comp system.

Workers Compensation laws and benefits are dictated by state law. 

 Each state has different defined benefits that employees are entitled to receive if they file a claim.

Indiana and Texas are known to be the most employer friendly states when it comes to Workers Comp benefit laws.

California and New York are the two most employee friendly.  

In these states, Workers Comp is very expensive in comparison to other states because the insurance companies will pay injuried employees greater benefits for a longer period after they are injured.

Oddly enough, there are a greater per capita number of lawyers who specialize in workers comp injuries in these two states as well.  

Ohio, North Dakota, Washington, and Wyoming only allow employers to buy Workers Comp coverage for the state run insurance company.

What Is Professional Liability?

Professional Liability insurance, also called Errors and Omissions insurance or more commonly, E&O insurance, covers “wrongful acts,” whether perceived or real, in the course of performing your professional duty.

General Liability is usually a physical loss to the customer where Professional Liability is typically a financial loss. 

For example, a consultant gets sued by a client who suffered a financial loss, stating they were given bad advice. 

Not that Professional Liability can’t be drawn into cases where a 3rd party is injured or killed.

Most doctors carry Medical Malpractice Insurance, which is a form of Professional Liability and these policies are pulled into cases involving patients who were injured or killed all the time.

According to this article, published by Pubmed.gov, over 250,000 people die annually due to medical malpractice, making it the 3rd leading cause of death in the United States

What Does Professional Liability Insurance Cover?

When applying for Professional Liability Insurance, you will have to describe the professional services you perform for others. 

Messing up the delivery of these professional services, is what constitutes a “wrongful act”.

Professional Liability is covering the opinions and actions of a professional.  

The policy will pay out if there is a lawsuit brought against the professional, alleging he or she was negligent in the performance of their professional duties. 

The policy will pay for a lawyer to defend the case against the professional.

It will also pay for the damages awarded to the plaintiff.

Professional Liability Insurance Costs

The costs for this policy can vary depending on the profession being insured.

The policies themselves also vary in quality, so you need to either read the policy form before buying or use an agent you really trust to help make the decision for you.

Some professionals may benefit by using a group policy that is available through an industry organization.

Typically, these policies are fairly worded, so most of the necessary coverage is intact, while the pricing is generally very competitive.

Professional Liability Insurance Costs

The best professional liability insurance is not necessarily the lowest priced policy.

While price is always a concern, the way the policy is written is much more important.

Professional Liability Insurance policies are all written by the insurance companies selling them.

Because they are written by attorneys, they can be very confusing and dull to read.

The best way to know you are getting a good price with good coverage is to work with an agent who has experience working with this type of coverage.

Asking the agent to explain the coverage and why he or she recommends the policy is a good idea.

Keep in mind financial standing of the insurance company too.  

Most Professional Liability claims come in years after the “wrongful act” is committed by the insured professional, so buying from an insurance company who is built to last is a good move.

Professional Liability For Consultants

Most consultants need Professional Liability, but most of them are never asked if they carry it.

Usually, a client will ask the consultant if they carry General Liability because the client is ignorant of the correct terminology.

Since consultants are paid for the opinion, they are assuming a lot of Professional Liability that needs to be transferred to an insurance company.

Generally, any consultant can buy a decent policy from a company called Hiscox.

Hiscox also offers a General Liability component.

They are accessible via a traditional insurance brokerage, or directly on their website.

Consultants of all shapes and sizes can usually buy affordable coverage of $1,000,000 very quickly and easily.  

Shop around to save, but keep Hiscox in mind.

General Liability vs Professional Liability: What Type of Policy Do I Need?

Almost every business can benefit from having General Liability coverage. Anybody can be accused of hurting someone else or damaging property.

If you’re paid to render your opinion, you need Professional Liability insurance. This includes doctors, lawyers, hair stylists, CPAs, insurance agents and many other professions.

Claims Made vs Occurrence Form

It’s important to understand the differences between making claims on General Liability vs Professional Liability Insurance.

Most General Liability policies are written on an occurrence form. 

This allows you to file a claim against policy coverage that has already expired, sometimes up to 10 years after the fact.

Occurrence Form policies obviously allow for more leeway in claims filing, but its recommended that any claim be filed promptly.

With Professional Liability Insurance, policies are written on a claims made policy form. 

This means the policy has to be in place when the “wrongful act” was committed and when the claim was made. 

If you’re presented with lawsuit papers, make a claim right away with your insurance company to avoid potentially making things worse or worse, making a claim too late and it’s not covered.

How Much Does General Liability vs Professional Liability Insurance Cost?

Best Practices: Applying for Coverage

When applying for Professional Liability coverage, it’s crucial to fill out an accurate and complete application. 

The way the “description of professional services” is written is the way coverage will be triggered if there is a claim.

 The application usually becomes part of the policy contract.

If the application is filled out inaccurately, coverage could be voided at the time of a claim.

For General Liability, you always want to be truthful on the application, but this policy is going to be a lot more flexible if business changes over the course of the policy term vs a Professional Liability insurance policy.  

If your business description changes while the policy is still active, it’s best to notify your insurance agent so they can determine if changes are needed on the policy.

Extra Coverages to Consider When Purchasing Professional Liability vs General Liability

Just like with personal insurance, there are extra coverages that can be added to a business indemnity insurance policy.

Professional Liability Insurance

Depending on the industry you work in, you may need coverage for Cyber Liability or Media Liability.

Cyber Liability coverage protects against financial losses resulting from internet-based risks, like data breaches or hacker attacks. Most policies include both first-party and third-party coverages, but double check to make sure you understand what’s covered and what’s not.

Media liability protects businesses creating or disseminating content, like broadcasters, publishers, journalists, and general content creators. 

This liability coverage could be related to advertising mistakes, missed deadlines, and general mistakes or oversights that negatively impact your client.

General Liability Insurance

If you are a manufacturer, General Liability could also include coverage for Product Liability. This coverage combined with General Liability can be called Products-Completed Operations liability. It provides coverage if you are sued by a customer for defective or faulty products you created.

Similarly, Completed Operations also applies to contractors, painters, and similar businesses. In the event your work fails or is found to be defective and you’re sued or asked to compensate the client, this falls under Products and Completed Operations coverage in the General Liability policy.

Closing Thoughts on Professional Liability vs. General Liability Insurance

General Liability is an important policy for all businesses to carry.  This is probably the first policy any business will buy.  Business owners policies will neatly package General Liability coverage with other essential and common insurance coverage for most businesses.

Professional Liability is a much more nuanced policy and most professionals would benefit by working with an insurance agent or broker who has experience in dealing with this type of policy.

Either way, its always good to shop with around with a couple different folks to make sure the person you are using to handle your business insurance is qualified and has the best interest of your business in mind.