If you’re building your own business, professional liability insurance can give you peace of mind. Blogger Louis DeNicola takes a cost-benefit analysis approach to show why solopreneurs may want this insurance.
I run a freelance writing company. Clients pay for my written work, but I’m also responsible for marketing, accounting, taxes, and finding products and services that help me run my business.
That includes business insurance—specifically, a professional liability insurance policy, also known as an error and omissions insurance or professional indemnity insurance.
What is Professional Liability Insurance?
Why did I take out a policy?
As a freelancer writer, my contract with a client states I will deliver an original piece of work. It could also require me to pay legal costs associated with a lawsuit if someone sues me, or the client, claiming I plagiarized their work.
Professional liability insurance could help pay legal fees, damages, or settlement from the lawsuit. I don’t expect there to be damages—I always deliver original work—but the legal fees to defend a frivolous lawsuit could be substantial.
Insurance could also help cover me if something I write has an error. My client could claim their reputation suffered because of the article, and sue me for damages. Or, someone reads the article, follows its inaccurate information, and then sues my client or me when something goes wrong.
I don’t expect to run into these types of problems, but I think it’s better to plan for worst-case scenarios. That’s where insurance comes in.
Finding the Right Insurance Policy was Difficult
I’ve bought several insurance policies before—including auto, health, and renter’s insurance. It took time to compare costs and coverages from different providers, but it was relatively easy to buy the policy once I made a choice. I was surprised to find this wasn’t the case with professional liability insurance.
I started my search for coverage at a professional organization specifically serving independent workers. They offer members a liability insurance policy from a provider we’ll call Company A. However, Company A told me they didn’t offer professional liability for freelance writers. The representative referred me to an insurance agency, Company B, that works with several other insurance companies, but Company B couldn’t help me either.
I contacted three more insurance companies directly and found none offered policies for freelance writers. Determined to find a viable option, I kept going until I finally had two good leads.
Getting my First Quote
My first successful lead was with another professional network that also partnered with an insurance company, Company C, to offer members liability insurance. I sent in an insurance application, knowing that if I decided to purchase it, I’d have to pay an additional $125 annual membership fee to the network.
I also requested a quote from Company D, a small business insurance agency. I’d heard an interview with the CEO where he discussed the importance of professional liability insurance for freelance writers—I figured they must be able to help. The Company D representative had me fill out a comprehensive form with questions about my income, clients, contracts, and how my business operates.
I heard back from Company C first. The good news was they could offer me a policy. The bad news was the cost. I had three options to choose from, but even the cost of the cheapest was more than I expected.
- $1 million worth of coverage with a $5,000 deductible per case for $1,009 a year.
- $500,000 worth of coverage with a $2,500 deductible per case for $849 a year.
- $250,000 worth of coverage with a $2,500 deductible per case for $691 a year.
The minimal coverage would cost me more than $800 with the membership fee.
Then I heard from Company D. The agent couldn’t find a policy for me because my work focuses on personal finance.
I decided to continue my search. I’d read that professional liability can often cost around $500 to $1,000 a year, and was hoping to get as close to the bottom of that range as possible.
Buying a Professional Liability Insurance Policy
Eventually, I found another business insurance agency and the representative said she could help. I shared basic information about my work and my expected income for the next year. The agent offered me a policy underwritten by Company E that has $1,000,000 in coverage with a $1,000 deductible for $500 a year.
I’d done enough research that I knew I wanted coverage and the price was about as good as I could expect. I hesitated, though: I had to make the purchase before reviewing the policy, but I asked the agent plenty of questions and decided to buy it.
Upon a closer reading, there are a few exceptions to the coverage that seem broad. For example, I might not be covered if I break a guarantee in my contract —such as guaranteeing the work is my own. In which case, I’m not sure the insurance will protect me in as many scenarios as I’d hoped. My new approach? Combining my insurance protections with carefully worded contracts so I won’t be responsible for legal fees to defend frivolous lawsuits.
The Bottom Line
I was surprised it was difficult to find a company willing to sell me professional liability insurance, but happy I put in the effort to get quotes from several insurers. The coverage I have may not be as comprehensive as I originally wanted, but I now have an extra layer of protection. I see it as one more piece in the puzzle as I try to build a successful business.
Louis DeNicola is a freelance personal finance writer who specializes in credit, debt, and practical money-saving tips. In addition to being a Grownup, you can find his work on Credit Karma, MSN Money, Cheapism, Business Insider, and Magnify Money.
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