The primary difference between general liability and professional liability insurance has to do with which claims are covered under each one. General liability pays for claims arising from injuries, both physical and advertising, as well as property damage to others. Professional liability insurance, also known as errors and omissions (E&O) or malpractice insurance, covers financial loss as a result of negligence while providing a professional service.
General Liability | Professional Liability | |
|---|---|---|
What’s Covered? | Bodily injury, advertising injury, and property damage claims | Negligence-based claims when providing a professional service which results in financial loss |
Premium Costs | $300 to $900 annually | $500 to $1,500 annually |
Typical Deductibles | $0 | $1,000 to $5,000 |
Other Coverage Names | Business liability or commercial general liability insurance | Errors and omissions or malpractice insurance |
Typical Policy Type | Occurrence | Claims-made |
Policy Grouping | Typically grouped with other policies in the form of a business owner's policy (BOP) or commercial package policy (CPP) | Typically standalone coverage |
Who General Liability Is Right For
General liability insurance is recommended for just about any business since all are at risk of causing unintentional physical injury to others, advertising injury to others, and property damage to others. General liability covers all of these risks.
Below are scenarios in which a business should have a general liability policy:
- Customers or clients are coming onto the premises of the business
- A business rents a storefront or office space
- Marketing activities are used to acquire revenue
- A product is designed, manufactured, and sold by a business
- A business works on tangible projects like construction that, if poorly developed, can cause physical injury or property damage
- The property of others is handled or is in the custody of the business
Aside from specific scenarios, sole proprietors should purchase general liability coverage to protect their personal assets, and home-based businesses should purchase it since most homeowner’s insurance carriers exclude business activities from their policies.
The Hartford is a solid general liability insurance carrier for small businesses. By packaging general liability coverage with other essential business coverages like commercial property, crime, or cyber insurance, it can offer your business cost-effective insurance solutions.
Who Professional Liability Is Right For
Professional liability insurance is designed to protect businesses in specialty professions that could have claims filed against them for negligence while providing service or advice. For the most part, this includes professions that require specialized education, training, and/or licenses, or specific industry experience.
Below are scenarios where a business should have professional liability coverage:
- A business provides services or advice and has a high degree of expertise compared to a nonprofessional.
- Professionals have quality standards set by an association or governing body within their industry
Businesses that would want to ensure they have a strong professional liability policy include doctors, lawyers, accountants, insurance agents, real estate agents, information technology (IT) professionals, architects, personal trainers, hairstylists, and business or marketing consultants. Additionally, any sole proprietor that needs to protect their personal assets but also perform professional services should acquire a professional liability policy.
Hiscox is an insurance company that offers professional liability coverage for a wide range of professions. It has terrific premium rates as well as adequate coverage limits to ensure that your small business is covered for negligence-based claims.
General Liability vs Professional Liability Covered Risks
While both coverages will pay the costs of legal fees, defense, settlements, and damages for third-party claims, the main difference between professional liability insurance and general liability insurance is the types of claims that are covered.
General Liability Coverage
General liability coverage provides financial compensation to businesses for third-party claims, usually from customers, clients, or vendors that accuse the business of being responsible for physical injury, advertising injury, or property damage.
There’s also a component of general liability called products and completed operations, which extends the coverage of general liability to cover claims of injury or property damage resulting from work that your business has completed or specific products you have produced.
Below are some examples of scenarios that general liability insurance would cover:
- A customer slips in your store and breaks their arm
- A competitor claims that your marketing materials misrepresent their business practices
- The property that your restaurant leases is damaged due to a kitchen fire
- A poorly designed sink that you manufacture causes a customer’s kitchen to flood, resulting in floor damage
Professional Liability
Professional liability pays for third-party claims due to negligent professional services. Unlike general liability claims, which arise from injuries or property damage, professional liability claims come from the financial loss of a customer or client.
Below are examples of situations that professional liability insurance would cover:
- A client claims that their defense attorney excluded evidence that would have proven their innocence and required them to pay $0 in damages
- A tax preparer makes an error on a client’s tax return resulting in an IRS fine
- An IT consultant makes an error in their client’s network system, causing the network to shut down, resulting in a loss of customers
General Liability vs Professional Liability: Premium Costs
Professional liability coverage is often more expensive than general liability coverage. Much of this is because of how expensive professional liability claims can be due to the length of time it takes to adjudicate a lawsuit.
Both general and professional liability insurance premiums take into account the same cost factors:
- Industry/profession: Certain industries and professions are considered higher risk than others in terms of frequency and severity of claims:
- General liability example: Construction is a higher-risk industry because of the severity of claims that could result from injuries if a completed project breaks down
- Professional liability example: Lawyers are a higher risk because of the frequency of cases they handle and the catastrophic financial burdens resulting from a lost or mismanaged case
- Experience: Underwriters feel that the more experience someone has in a profession, the less likely a claim will arise, which results in lower premium costs
- Claims history: Multiple claims within a particular period of time show that the insured isn’t being diligent or hasn’t made adjustments after previous losses, making them a higher risk
- Limits: Higher limits and sublimits will result in higher premium costs
- Deductible: The deductible is the amount that an insured must pay before an insurance company pays any claims; it’s the amount of risk absorbed by the insured, so the more risk they take in terms of deductible size, the less the insurance company will charge them in premiums
General Liability Costs
General liability coverage for small businesses ranges from $300 to $900 annually, with coverage for construction and contracting businesses being the most expensive. Coverage for IT professionals, insurance agencies, and photography businesses tends to be on the lower end.
Professional Liability Costs
Professional liability coverage is more expensive, ranging from $500 to $1,500 annually for small businesses. Building designer businesses like architects and engineering firms pay higher premiums, while financial advising, accounting, and tax preparation firms pay less for coverage.
General Liability vs Professional Liability Insurance Deductibles
A deductible is an amount that the insured must pay before the insurance company pays a claim. Generally speaking, general liability policies don’t require a deductible while professional liability policies always do.
General Liability Deductibles
Even though commercial property, commercial auto, and crime policies typically require the insured to pay a deductible, general liability doesn’t require one. Some carriers, however, will allow an optional deductible for general liability policyholders to reduce the premium.
Professional Liability Deductibles
Professional liability insurance always requires a deductible, which for small businesses can range from $1,000 to $5,000, depending on the limits. It’s important to note that a professional liability insurance deductible should be affordable to the business and accounted for in its budget. While raising the deductible can decrease premiums, it doesn’t always make sense for a business to do so.
General Liability & Professional Liability Coverage Limits
Both general and professional liability insurance policies have aggregate and per-occurrence coverage limits. The aggregate coverage limit is the total amount that an insurer will pay during a set period of time or during the policy period. The per-occurrence limit is the amount an insurer will pay for each claim. Both coverages also utilize sublimits for amounts that an insurer will pay for certain events.
General Liability Coverage Limits
For small businesses, general liability coverage limits will typically range from $500,000 to $2 million per occurrence and $1 million to $4 million aggregate. There are also sublimits ranging from $300,000 to $500,000 for damage to premises rented out and $5,000 to $10,000 for medical expenses. Additionally, there are separate per-occurrence and aggregate limits for products and completed operations coverage and personal and advertising injury coverage.
Professional Liability Coverage Limits
Professional liability insurance limit amounts are nearly the same as general liability amounts both per occurrence and aggregate. On some occasions, professional liability policies also will use sublimits for supplemental coverage related to negligence like cyber and data breach coverage.
One of the main differences between professional liability and general liability coverage is the use of “shrinking limits” or “defense inside/outside the limits.” For a professional liability policy, the insured can select either one:
- Defense inside the limit: Defense costs, including attorney’s costs, court fees, and investigation costs are deducted from the policy limit
- Defense outside the limit: Defense costs are separate limits and don’t reduce the policy limits for damages or settlements
General liability policies typically pay defense costs in addition to the coverage limit. This distinction between “inside” vs “outside” the limit is important as it can determine premium costs to the insured and have an impact on the amount of coverage they should buy.
General Liability vs Professional Liability Insurance Policy Types
When discussing any type of liability policy, there’s always a discussion of claims-made vs occurrence policies that’ll dictate which claims―in terms of the time of the incident―are covered.
- Occurrence policy: Covers losses that take place during a coverage period, regardless of when the incident is reported
- Claims-made policy: Covers incidents reported during the policy period as well as during an extended reporting period, but that took place after the policy’s retroactive date
General Liability: Occurrence
General liability coverage is usually written as an occurrence policy but can be claims-made if the insurer offers it. A general liability claim on an occurrence policy can be visualized by using a construction business as an example:
Let’s say that ABC Construction Inc. had a general liability occurrence policy from January 1, 2020, to December 31, 2020. A claim was made on January 10, 2021―after the policy period―stating that a roof built by ABC during their policy period had caved in and injured three people. Because the work was completed during the policy period, it’ll be covered regardless of when the claim was made.
Professional Liability: Claims-made
Professional liability insurance is typically written as claims-made. It’ll set a retroactive past or current date when the policy’s coverage begins, and any incidents that occur on or after that date will be covered, as long as the claim is made during the policy period.
For example, 1-2-3 Tax Preparation has a claims-made, professional liability policy from January 1, 2021, to December 31, 2021, with a retroactive date of January 1, 2010. A client makes a claim in October 2021 that a tax error made by 1-2-3 in 2017 cost them $20,000 in IRS fines. Because the error took place after the retroactive date and was reported during the policy period, it’ll be covered.
General Liability vs Professional Liability Exclusions
Like all insurance policies, there are exclusions to what events or perils will be covered under a general or professional liability policy, and these will be listed on the policy. Exclusions that both general liability and professional liability insurance share are any first-party injuries as well as claims made by the owner or by employees of the business.
General Liability Exclusions
General liability insurance only provides third-party―damage to others―coverage for claims of physical injury, advertising injury, and property damage. Below are examples of general liability insurance exclusions:
- An employee is injured on the company premises during work hours, which is covered by workers’ compensation coverage
- A customer files a negligence claim for accounting services they received, which is covered by professional liability insurance
- An employee makes a claim that the business wrongfully terminated them, which is covered by employment practices liability insurance
Professional Liability Exclusions
Professional liability insurance will only provide third-party coverage for errors, omissions, or negligence related to a service or advice provided by the business. It also will exclude any criminal acts made by you or your employees. Below are some examples of professional liability insurance exclusions:
- Claims made by shareholders against a board of directors for mismanagement of a firm: covered by directors & officers (D&O) insurance
- Competitor making a slander claim against your business for things said in a television interview: covered by general liability insurance
- Claims of errors made by independent contractors, freelance employees, or subcontractors: covered by their professional liability insurance―be sure to request certificates of insurance from them
Bottom Line
Both general liability and professional liability insurance can be great financial products that a business can use to transfer its risk. The main difference between the two is the types of claims that each will cover. General liability coverage protects businesses from third-party claims of physical injury, reputational harm, and property damage. Professional liability insurance covers claims pertaining to negligent professional services or advice provided to a third party.
