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State requirements for professional liability insurance
Professional liability insurance protects business owners against client lawsuits over unsatisfactory work. Also known as errors and omissions (E&O) or malpractice insurance, this policy may be required by the laws in your state or by those you do business with.
When is professional liability insurance required?
State laws don’t often require businesses to carry professional liability insurance, also called professional indemnity insurance. However, some professionals may need this coverage in order to obtain a business license in their state. You might also need this policy for government or client contracts, or to work in a legal or medical setting.
State laws often mandate professional liability coverage for:
Regardless of state requirements, any business that offers professional services or advice should carry this insurance coverage to protect against legal costs related to errors and oversights.
Find business insurance requirements in your state
Select your state to learn about professional liability and other insurance requirements for your small business.
State laws for medical malpractice insurance
Professional liability insurance for healthcare providers is often known as medical malpractice insurance. While there is no federal requirement for this coverage, it may be required in some states and healthcare settings.
For example, several hospitals and clinics require doctors to have certain amounts of medical malpractice coverage in order to work there or have admitting privileges.
While other health-related professions, such as a therapists and counselors, are not typically required to carry malpractice insurance, it is still a good idea to invest in this coverage to prevent the risk of a client lawsuit that could cost thousands of dollars.
Learn more about the laws and regulations for medical malpractice insurance in your state.
State laws for professional errors and omissions insurance
If you work in real estate or insurance, some states may ask you to carry professional liability insurance, in this case referred to as errors and omissions insurance (E&O), before they will grant you a license.
For example, the state of Nebraska will require that a State Program Administrator certify to the Real Estate Commission that all applicants for new licenses (or renewals) have proof of errors and omissions insurance.
In Rhode Island, insurance producers must carry an E&O policy with a $250,000 per-occurrence limit and a $500,000 aggregate limit.
State laws for legal malpractice insurance
Most states do not require lawyers to carry malpractice insurance, although in some states attorneys must notify their clients if they do not have a certain level of coverage.
For example, states like Ohio and Pennsylvania require attorneys to either carry malpractice insurance with policy limits of $100,000 per claim and $300,000 annual aggregate, or to notify clients in writing if they don’t have this coverage.
Texas requires coverage of $100,000 per claim, or to have this same amount set aside as a self-insurance contingency fund. Oregon requires attorneys to obtain this coverage through a state fund.
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Why do you need professional liability insurance?
Fighting a lawsuit can be expensive, even if you’ve done nothing wrong. Professional liability insurance covers the cost of litigation, such as attorney fees, court costs, and settlements.
It covers you in case of a client lawsuit over the following situations:
- Accusations of negligence, such as an engineer who creates an unsafe design.
- Work mistakes and oversights, such as an attorney who fails to include an important clause in a legal contract.
- Inaccurate advice, such as an accountant or tax preparer who makes a costly mistake in determining what you can deduct from your tax returns.
- Missed deadlines and undelivered services, such as a consultant who fails to meet a contract obligation completely or on time.
How much does professional liability insurance cost?
View video transcript.
Get professional liability insurance to protect yourself from claims that you didn't deliver on a deadline, or made a costly mistake.
Some clients require you to have this policy. It can protect you from expensive lawsuits for only about 60 dollars per month.
Don't put your business at risk. Apply for your policy today!
Alert. Alert.
The average cost of professional liability insurance coverage is $61 per month.
Your premium depends on several factors, such as:
- Your type of business and industry
- The coverage limits and deductible
- Your business size and location
- Your day-to-day operations
- Your claims history
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What if I cancel my professional liability insurance?
Canceling your coverage could result in significant liability for your business because professional liability policies are issued on a claims-made basis. This means it only provides benefits while your policy is active.
If you’re sued for an incident that happened before the effective date of your policy, you would not be covered.
If you canceled your coverage and are later sued for something that happened while your policy was active, you wouldn’t be covered because that cancellation negates the insurance company’s obligation to you.
This is why it’s important to maintain your professional liability coverage at all times.
Do I need general liability and professional liability coverage?
These insurance policies offer liability coverage for different situations. You may need one or both policies depending on the type of risks you face.
General liability insurance is often the first type of insurance that small business owners purchase. It covers everyday business risks such as customer bodily injuries, customer property damage, and advertising injuries.
If a customer has a slip-and-fall accident at your business, or if you damage a customer’s property, your general liability policy would cover any resulting legal costs.
Your professional liability insurance covers claims of professional mistakes and oversights such as unsatisfactory work, professional negligence, and missed deadlines.
“Many insurance carriers have an E&O requirement when writing a general liability policy for operations like insurance and real estate,” explains one of Insureon's professional liability experts. “These carriers require insurance and real estate agents to show proof of coverage before they will bind a general liability policy.”
What other types of business insurance do I need?
General liability insurance and professional liability insurance don’t protect against every risk of running a business. Depending on the specifics of your business, you may need other policies, some which may be required by law.
- Workers’ compensation insurance covers medical costs and lost wages from work-related injuries and illnesses. It’s required in most states for businesses that have employees.
- Commercial property insurance is often required to sign commercial leases. It covers your business’s building, equipment, and inventory.
- A business owner's policy (BOP) combines general liability and commercial property insurance into one policy. It’s usually less expensive than buying each policy separately.
- Commercial auto insurance is required in most states for businesses that own vehicles.
- Cyber insurance covers the cost of dealing with a data breach or malicious software attack.
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Updated: December 9, 2023
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