General Liability vs Professional Liability Insurance: Which Is Right for You

The main difference between general liability vs professional liability insurance is the risks they cover. General liability insurance pays claims regarding property damage, physical harm, and advertising injury brought by third parties. Alternatively, professional liability, sometimes called errors & omissions, pays claims of financial loss caused by negligence, errors, and omissions when providing professional services.

Most business owners buy general liability insurance because it covers events that almost every business faces, while professional liability insurance is usually only purchased in certain industries. General liability costs around $400 to $600 per year for most small business owners. On the other hand, professional liability can cost between $500 and $3,500 annually.

How General Liability Insurance Works

General liability insurance covers costs if a third party, such as a customer or client, accuses your business of causing them physical injury, property damage, or reputational harm. Policies typically pay for the third party’s medical or repair bills or your legal fees, including court-awarded judgements, if they decided to sue.

Some examples of what general liability covers include:

• Property damage: A neighbor’s office floods after a pipe bursts in your place of business.
• Physical injury: A delivery person slips on your wet floor while dropping off a package.
• Reputational harm: A competitor sues you for slander after reading your remarks in an interview.

Most general liability policies also include products-completed operations coverage to pay for claims that a defective product you helped bring to market caused physical harm to a consumer.

Who General Liability Insurance Is Right For

General liability insurance is a fundamental coverage for companies of all sizes because it covers risks that any business can face, regardless of the industry or the operations. Moreover, many of the third-party risks general liability covers, such as customer injuries and property damage, happen more often than business owners may imagine.

Small business owners who need general liability should check out The Hartford. The company offers cost-effective coverage by combining general liability with commercial property insurance, and business owners can choose from a number of endorsements to increase coverage.

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How Professional Liability Insurance Works

Professional liability insurance, also called errors and omissions or E&O insurance, covers your legal defense if a third party claims they suffered a financial loss as a result of your mistakes or negligence. Coverage typically pays for attorney’s fees, court costs, investigator’s bills, and settlements or judgements.

A few claims professional liability insurance pays for include:

• Negligence: An accountant making a calculation error on a client’s tax forms.
• Inaccurate professional advice: A lawyer advising a client to settle a claim for less than it’s worth.
• Violation of good faith: A real estate agent misrepresenting the value of a property to increase their commission.
• Work errors or omissions: A web designer creating an ecommerce site that repeatedly crashes and causes the retailer to lose customers.

Professional liability insurance only pays for third parties’ financial losses.

Who Professional Liability Insurance Is Right For

Traditionally, professional liability insurance is for individuals who have specialized professional training. This usually means accountants, lawyers, physicians, and architects. However, the definition has been expanded to also include “quasi-professionals” such as insurance and real estate agents, business consultants, and IT professionals.

Some insurers have also created professional liability products for people with technical training. Hair stylists, tradespeople, personal trainers, and nutritionists may find professional liability insurance that is suited to their needs.

The Hartford offers professional liability insurance both as an endorsement and a standalone policy so you can get a policy that matches your risk. The company also has industry-specific endorsements, making it easy for you to tailor your professional liability to your business needs.

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How BOPs Work

BOP stands for business owner’s policy, a policy bundle insurers created to help make certain insurance policies more affordable for small businesses. Most BOPs combine general liability with commercial property insurance, but insurers are starting to add other coverages when they are essential for an industry. In some cases, that means adding in professional liability. This is more common for low-risk industries.

Who BOPs Are Right For

Every small business insurer has its own qualifications for their BOPs, but many only sell them to small businesses in low-risk industries that have fewer than 100 employees and less than $1 million in revenue.

Examples of low risk industries can include:

• Personal care: Hair salons, barbershops, and massage therapists
• Fitness: Personal trainers, yoga instructors, and Pilates teachers
• Miscellaneous services: Tutors, photographers, and wedding planners

Standard BOPs only include general liability and property coverage, so insurers who offer a business owner’s policy with professional liability are typically adding coverage through endorsements or using a non-standard form. Either way, business owners should review the policy terms closely.

When to Buy General Liability Insurance

Most business insurance brokers tell you to get general liability insurance the moment you open your doors, and they’re not wrong. General liability covers some of the most common claims businesses face, namely customer injuries and property damage. Without a policy, many new business owners end up paying for unexpected lawsuits out of pocket.

Situations where a business owner should buy general liability insurance include:

• They have customers, clients, or other parties visiting their location: General liability covers damages and injuries if a visitor has an accident at your place of business.
• They rent a physical location: Most general liability policies include coverage for damage you cause to the business space you rent.
• They advertise their services: General liability covers your legal defense if you’re sued for advertising injuries, such as defamation, copyright or trademark infringement, and misappropriation.
• They sell, manufacture, or distribute products: Most general liability insurance includes products-completed operations coverage to pay for lawsuits over defective products.
• They handle other people’s property: Business owners who either borrow equipment from other businesses or regularly store customer’s property need general liability to cover any damage to that property while in their care.
• They are sole proprietors who want to protect their personal assets: Sole proprietors can be held personally responsible for their businesses’ debts, including settlements and judgements in lawsuits.
• They own a home-based business: Homeowner’s insurance typically excludes business activities, so home-based business owners are often exposed to liability risks.

Many of the events covered by general liability insurance fall on the list of the top ten most costly small business claims, according to a study by The Hartford. That study found reputational harm, such as defamation, to be the most expensive, averaging $50,000.

When to Buy Professional Liability Insurance

Unlike general liability, not every business owner needs professional liability insurance. Typically, professional liability is reserved for individuals who make their living through activities that require a high level of education or skill. This definition traditionally includes physicians, architects, accountants, and lawyers, but has expanded to include almost any business that provides a service, including business consultants.

Situations where a business owner most likely needs professional liability insurance include:

• They provide professional or technical services or advice: Professionals are usually obligated to protect their clients from unreasonable harm. Failing to do that often results in a negligence lawsuit.
• They are expected to maintain professional standards: Falling short of professional standards opens business owners up to negligence claims.
• They are sole proprietors who want to protect their personal assets: If a sole proprietor is sued for negligence, the cost of any settlements or court awards can be taken out of their personal savings.

Even if a lawsuit is frivolous, a small business owner may still need to spend up to $5,000 to get it dismissed, according to the most recent data from the U.S. Chamber Institute for Legal Reform. This makes professional liability coverage essential for any business owner who provides services or advice.

When to Buy a BOP

Generally, business owners should at least consider a BOP if they are eligible for one that includes professional liability coverage. This allows them to get three essential policies for a lower rate. However, sometimes the professional liability coverage amount is too low for a particular business’ risk.

Some things to consider before buying a BOP with professional liability coverage include:

• Your risk of being sued: Some industries see more accusations of negligence, including allied health, accounting, law, engineering, and architecture.
• The policy terms: An insurer may keep costs down by limiting the scope of the coverage, including coverage amounts and covered events, or by requiring a high deductible.
• Added incentives: More expensive policies may come from insurers that offer safety training, premium discounts, or other perks that offset the higher cost.

Professional Liability Insurance vs General Liability Insurance Coverage

Comparing general liability to professional liability reveals a few important differences between the policies. The most significant difference is the type of risks each covers. General liability insurance is mainly limited to property damage and physical injury, plus reputational harm caused by advertising injuries. Professional liability covers financial harm from negligence and professional errors.

General Liability vs Professional Liability Comparison

General Liability vs Professional Liability Insurance Covered Risks

The primary difference between general liability and professional liability is the type of risks each coverage. General liability insurance typically covers events that could happen to any business, which is why it’s called “general” liability. Professional liability, however, covers risks specific to the services your business provides.

General Liability Insurance Covered Risks

General liability insurance covers your business’ responsibility for harm caused to third parties—essentially, anyone who is not your employee. If a customer, client, or other visitor suffers a physical injury, property damage, or reputational harm either at your business location or because something you or your employee did, general liability pays the associated costs.

The costs typically covered by general liability insurance include:

• Third-party medical bills
• Third-party repair bills
• Your legal costs in a lawsuit

Most general liability policies pay these expenses whether you or your employees are the source of the claim.

Professional Liability Insurance Covered Risks

Professional liability also covers harm to third parties; however, it pays for financial losses due to your negligence or professional errors and omissions. For example, a professional liability policy might be triggered if a client accuses your law firm of failing to file a brief that could have won their case.

Some of the costs professional liability insurance pays for include:

• Lawyer’s bills
• Court fees
• Investigation costs
• Settlements
• Judgements

Like general liability, most professional liability insurance policies cover your actions and those of your employees.

General Liability vs Professional Liability Insurance Costs

Professional liability tends to be more expensive than general liability insurance. This is because professional liability covers lawsuits that tend to cost more than general liability, both in terms of time and settlements or judgements awarded.

General Liability Insurance Costs

In a comparison of general liability versus professional liability costs, general liability policies tend to be less expensive. This is partly because the lawsuits general liability covers tend to be less expensive than the ones covered by professional liability. Most small business owners can find general liability insurance that costs around $200 to $800 annually.

Some of the factors that determine your general liability premium include:

• Industry: Some industries have a higher risk of customer injuries and property damage. A good example is restaurants because they have a physical location with lots of foot traffic.
• Owner’s experience: Business owners who have been in their field longer generally demonstrate greater financial stability and manage their risks better.
• Claims history: A few claims may not increase your premium, but multiple claims in a short time indicates to insurers that your business may be risky for them to insure.
• Coverage limits: Usually, business owners get to choose how much general liability they need, and higher limits increase your costs.

Professional Liability Insurance Costs

Professionally liability insurance typically costs more than general liability because it covers more expensive lawsuits. Most small business owners spend between $1,000 and $5,000 per year on professional liability. The policyholder’s industry has a major impact on these costs.

“One of the most expensive professions for errors and omissions (E&O) insurance is typically architects and engineers, and it’s easy to see why. When designing or constructing a physical building, there are real, serious, and sometimes even fatal issues that can arise when professional judgment and expertise break down and a mistake is made. If a building’s structural support is compromised due to faulty calculations and faulty design, and there is now rubble where a wall used to stand, then the architect or engineer responsible will be glad that they’ve maintained adequate professional liability insurance coverage.”

– Joel Ohman, Founder, CarInsuranceComparison.com

General Liability vs Professional Liability Insurance Deductibles

Deductibles, or the amount the policyholder is responsible for in a claim, are a major distinction between general liability and professional liability policies. General liability policies typically don’t require deductibles, whereas professional liability policies almost always do.

General Liability Insurance Deductibles

Another difference between general liability and professional liability is the deductible, or the amount the policyholder pays in a claim. Insurers commonly require deductibles on commercial property policies but not on general liability insurance.

Business owners can choose to add a deductible to their general liability policy to help lower their overall costs, but they should think carefully about this option before they choose it. They need to pick a deductible they can afford if they have a claim. In fact, they should probably anticipate filing more than one claim to ensure they set an appropriate deductible.

Professional Liability Insurance Deductibles

Unlike general liability insurance, professional liability policies almost always have a deductible, with the main exception being very small or low-risk businesses. Business owners can usually select their deductible, and most insurers offer deductibles between $1,000 and $5,000.

“There are varying levels of (professional liability) insurance available; some have a low premium but will carry a high deductible if an event occurs. Look at the options available in relation to your business finances. If the deductible for insurance is very high and you could not support it, there may be value in selecting a higher premium, lower deductible plan.”

– Jared Weitz, CEO and Founder, United Capital Source Inc.

General Liability vs Professional Liability Insurance Coverage Limits

Both general liability and professional liability insurance have coverage limits, or the total your insurer pays for claims. The aggregate limit is the total amount your insurer pays for all claims that occur during the policy’s coverage limit, and the per-occurrence limit is the amount of each claim. Additionally, most policies have sublimits you need that indicate the amount paid for certain types of events.

General Liability Insurance Coverage Limits

General liability has coverage limits, which are caps on how much your insurer pays. The three main limits to know are per occurrence, aggregate, and products-completed operations aggregate. The per-occurrence limit is the amount your insurer pays on any one claim, while the aggregate limit is the total amount available over the life of the policy. The products-completed operations aggregate is the total amount paid for product liability claims.

Additionally, general liability insurance typically has sublimits that put a cap on payouts for specific events. For example, a general liability policy may limit coverage for damage to a location you rent to just $300,000. Sublimits are part of the aggregate limit and are usually listed as dollar amounts in your general liability policy.

Professional Liability Insurance Coverage Limits

Professional liability also has an aggregate limit and a per-occurrence limit. However, the difference in the limits between professional liability insurance and general liability insurance is how they apply to defense costs. Most professional liability coverage has what are known as “shrinking limits,” which means defense payments reduce the overall coverage amount. For comparison, general liability policies pay defense costs in addition to the coverage limit.

Another name for shrinking limits is “defense within limits.” Business owners need to know if their professional liability policy is written as defense within limit or defense outside of limits so they can determine the appropriate coverage amount for their particular circumstances.

General Liability vs Professional Liability Insurance Policy Types

Typically, there are two kinds of liability insurance policy: occurrence and claims-made. Professional liability insurance is usually written as a claims-made policy, while general liability insurance is typically per occurrence.

General Liability Insurance Policy Type: Occurrence

Policy types represent another major difference between professional liability insurance and general liability insurance. Both can be written as either an occurrence policy or a claims-made policy, but occurrence policies are much more common for general liability. This means your insurer pays claims as long as the event that triggers coverage occurs when the policy is active. Even if the claim is filed years after the policy is terminated, the insurer pays.

Professional Liability Insurance Policy Type: Claims-made

Professional liability insurance is most often written as a claims-made policy. In this case, both the triggering event and the actual claim report have to happen while the policy is active. For example, say a client sues you for negligence after you retire and cancel your professional liability insurance. The triggering event may have occurred while your policy was active, but the claim was filed after, so your insurer would most likely deny the claim.

General Liability vs Professional Liability Insurance Exclusions

Most insurance policies limit coverage by excluding certain event, or perils. These exclusions are often listed in the policy. For instance, common general liability exclusions include first-party injuries. Professional liability typically excludes lawsuits brought by employees.

General Liability Insurance Exclusions

General liability insurance only covers third-party property damage, bodily harm, and advertising injuries, which means it automatically excludes your and your employees’ injuries, negligence lawsuits, and employment practices lawsuits. It also doesn’t cover your injuries or property damage. These events are usually covered by other business insurance policies.

According to insurance agent Tony Arevalo, insurers may also specifically exclude or limit coverage for high-risk activities, including some industry-specific operations.

“Any events, such as parades, festivals, and concerts, typically go on a separate policy. Furthermore, any alcohol-related claims are excluded. You’ll need liquor liability policy for such coverage. Finally, damages caused by high-risk factors are often not covered. For instance, a general liability policy for tanning salons always carries a cancer exclusion.”

– Tony Arevalo, Insurance Agent, Carsurance.net

Finally, most general liability policies exclude independent contractors, freelancers, and subcontractors from coverage.

Professional Liability Insurance Exclusions

Professional liability insurance also excludes risks that are covered by other policies. For instance, it doesn’t pay for lawsuits brought by employees, because those are covered by either employment practices liability or workers’ compensation insurance.

Other examples of common exclusions in professional liability insurance include:

• Defamation
• Third-party property damage or bodily harm
• Criminal wrongdoing by you or your employees
• Errors, omissions, or negligence committed by your independent contractors and subcontractors

General Liability Insurance Example

The most common general liability example is a customer injuring themselves in a slip-and-fall. If this happens, most general liability insurers pay the customer’s medical bills, including the cost of an ambulance ride and emergency room visit if necessary. Insurers prefer to pay these immediate costs because it reduces the chance of a more expensive liability lawsuit.

The same is true for third-party property damage. Say, for example, a fire in your restaurant causes damage to nearby businesses. Your insurer will work with these businesses to determine repair costs in hopes of avoiding court. However, they will most likely cover your legal defense if the other business owners decide to sue.

Professional Liability Insurance Example

Professional liability insurance is often triggered by a client’s dissatisfaction. In fact, most professional liability policies tell policyholders to notify their insurer as soon as they are aware of a potential claim.

Some ways business owners become aware of negligence allegations include:

• Demand letters
• Threatening phone calls
• Notice of investigation by a regulatory agency
• Request for professional liability policy information
• Subpoena for documentation, deposition, or testimony

For example, if your client ends a phone call by threatening to sue, you may need to inform your professional liability provider. Failing to do so may allow them to deny your claim.

Professional Liability Insurance vs General Liability Insurance Frequently Asked Questions (FAQs)

While this article answers many of the questions regarding professional liability insurance versus general liability insurance, you may have other questions about the individual coverages. We’ve added a few of the most common questions here.

Is personal liability the same as general liability?

Personal liability and general liability are similar, but they are not the same. Only businesses have general liability, so only businesses have general liability insurance. Personal liability is your responsibility to others outside of your work life, and coverage for this appears in your homeowner’s or renter’s insurance.

Is EPLI the same as professional liability insurance?

Employment practice liability insurance, or EPLI, is not the same as professional liability insurance. EPLI covers employer-employee relationships, paying for the employer’s legal defense if an employee claims harassment, discrimination, or other unfair treatment in the employment process. Professional liability covers a business owner’s responsibilities towards third parties, not employees.

Does professional liability insurance cover my employees?

Most professional liability insurance policies extend coverage to your employees, but they seldom cover actions of independent contractors. Business owners who regularly work with independent contractors or freelancers may only want to add them if they have their own professional liability insurance.

Does my LLC need liability insurance?

While forming a limited liability company (LLC) protects your personal assets, your business assets are still vulnerable in a lawsuit. This makes LLC insurance an essential coverage for LLC owners. Most need at least general liability, but any LLC that provides services or professional advice may also need professional liability insurance.

Bottom Line

General liability and professional liability insurance cover significantly different risks. Most businesses face the perils covered by general liability; only businesses that offer services or advice require professional liability. While there are no alternatives for either coverage, some owners may be able to find BOPs that include professional liability to help with costs.

Whether you need professional liability or general liability insurance, The Hartford is a good choice. The company specializes in small business insurance and offers an array of endorsements to help you tailor your coverage to your risk. Business owners can apply online and often get quotes in less than five minutes.

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