Last Updated on: 22nd November 2023, 03:13 am
Starting and maintaining your own small business is a lot of hard work and dedication. For instance, a lawyer who envisions their practice registers their business. Then there’s all the additional work of compiling close contacts and bringing in a partner or two in business, only to then apply for a lease or loan. While all of the steps above are essential to starting your own business, they’re not all there is.
Many entrepreneurs and professional organizations often overlook the different types of insurance policies they need, either for common sense or required by law. Not to mention, getting to know all the intricacies of how your insurance is calculated and where you can get it from is the first step towards finding the right insurance policy for you, cost and coverage-wise. One of the essential insurance policies for small businesses is the professional liability insurance policy.
What is Professional Liability Insurance?
Professional liability insurance is an insurance policy that protects professional individuals and business owners from claims by their clients, ranging from accusations of negligence to other sorts of intentional and unintentional harm or malice. This type of insurance is primarily for professionals who have expertise in a specific area where incidents like negligence, malpractice, and misrepresentation are prominent such as lawyers, accountants, architects, and physicians.
A professional liability insurance policy tends to cover legally required settlement fees, as well as any legal expenses you may acquire after an accusation by a client doesn’t get resolved out of court. This type of insurance is essential to professionals whether they work as independent contractors as freelancers or with a company or agency as full-time employees.
Professional liability insurance isn’t a static service offered to all professionals. Premium rates change depending on multiple factors such as your monthly and yearly clientele quota and projects rendered as well as the industry you work in and the level of experience you have. That’s because insurance companies look at it as though the more projects and interactions with clients you regularly have, the higher the chances that something will go wrong, and they may need to intervene.
Another factor your insurance provider is likely to look into before quoting you a premium rate is your history of exposure. The fewer insurance claims you have had during the previous years, the more you’re likely to pay a much lower cost for premium insurance than another professional with multiple claims over the years. Some providers offer discounts for clients who use them as their insurer for several years instead of in the short-term.
Since most small businesses often offer multiple services to clients, it’s best to bill and insure them separately. For example, a lawyer may offer their legal services and also do some accounting for their clients. The same applies to architects, as designing a house, building, or facility requires different insurance rates than interior decor. Don’t include all different services in a single invoice. Instead, take the extra time to bill out separate invoices to your clients—each with a different type of service you offered them.
That way, instead of paying for all of your services the same rate you’d pay for your most risky one, you’ll end up paying varying rates depending on the risk factor of each type of service and how often your clients purchase it.
One factor that plays into your premium rates that you, otherwise, have little to no control over is your location. Companies in low-risk areas and states generally pay lower premium rates for their professional liability insurance. Location assessments quickly fluctuate, but you can still try to locate your businesses in a low-risk state to save a little on your premiums.
Reputation matters when it comes to premium rates on professional liability. Insurance companies are more likely to quote you a lower premium if you and your small businesses have a reputation of delivering high-quality work to your clients with little to no mistakes and errors.
However, reputation tends to extend way back in time. An insurance company is likely to investigate every little detail about your business looking for something that would justify them raising your premium rates. You need always to be two steps ahead of them and ensure you have a clean record of incidents and client complaints.
The Sooner, The Better
Although everyone would like to avoid risks, accidents happen. Get a professional liability insurance quote for your small business today. That way, you can go about your day risk-free now that you’re covered and can focus more of your energy on growing your business.