Chances are you’ve heard horror stories about colleagues who didn’t protect themselves with consultant insurance. There was Dani, who proposed a financial strategy that would mean immediate savings for her clients, who sued her when they lost money instead. Or Kevin, who had the unfortunate contract dispute with his client and racked up a ton in legal fees. And you can’t forget Eran, who was targeted by cyber hackers who threatened to leak her client’s electronic data if she didn’t pay them thousands of dollars.
These scenarios seem hard to believe, but you’ve seen it happen, and as you know, if it could happen to them, it could happen to you.
No profession is error-proof, and mistakes can happen, even to the most careful consultants. Yet, a large number of consultants aren’t protecting themselves with insurance. There are many reasons they may opt-out of purchasing insurance, but we’re here to tell you, most of those are myths.
What Exactly is Consultant Insurance?
When consultants think of insurance, three policies typically come to mind: General Liability, Professional Liability, and Errors & Omissions. They’re not wrong. Consultant Insurance is a policy package that protects against claims related to their professional activities, such as failure to deliver a service as promised or negligence. These three policies are the foundation of a comprehensive Consultant Insurance policy:
- Commercial General Liability Insurance (CGL): Commercial General Liability Insurance (CGL) covers claims related to physical injuries or property damage that result from your professional activities.
- Professional Liability Insurance: This is the policy you are perhaps most familiar with and require most as a consultant. Professional Liability Insurance deals with claims where your service resulted in a missed financial opportunity or financial loss for your client; such was the case with Dani.
- Errors & Omissions Insurance (E&O): A type of professional liability insurance, E&O covers claims alleging failure to deliver on a promised service and negligent actions that impact your client.
Nobody plans for these things to happen, but sometimes they do. As the professional consulting industry continues to grow, so too will the number of E&O claims made. When it comes to purchasing Consultant Insurance, you will never regret having coverage.
Now, let’s set debunk some myths:
#1. “I always take extra precautions; this won’t happen to me.”
You can dot all the I’s and cross all the t’s, but perceived bad advice or loss as a result of your actions is all it takes for someone to sue you, even if it’s incorrect. Regardless of whether or not the allegations are true, the legal expenses sustained throughout the process of proving your innocence can cause significant damage.
#2. “I work from home, and I don’t need liability insurance.”
Most homeowner’s insurance policies don’t cover business-related damages that occur at home, and even if it does, chances are it won’t cover claims that arise when you’re visiting a client on-site or traveling for work. A comprehensive insurance policy will protect you wherever you go.
#3. “My contract is airtight; I don’t need Consultant Insurance.”
A contract is an agreement between you and your client that outlines the specific terms of a project. It also describes whether or not lawsuits are an option. If you breach your contract, even accidentally (e.g., a missed deadline), your agreement could be voided, making a lawsuit an available option.
#4. “I only provide advice, so I don’t need E&O coverage.”
When you’re a consultant, you can be held liable for almost any negative impact that your services have on a business. For example, you’re an event consultant for a high-profile gala, and you accidentally send invitations to the wrong set of contacts (an error) or only half of the list (an omission), resulting in a negative response.
Including E&O in your policy ensures you have coverage for the legal services required to defend yourself against claims of negligence, even if those claims are baseless. This coverage is essential since the legal defense costs (including lawyer’s fees) are often the most expensive part of an E&O lawsuit.
Lawsuits are complicated, and they can be both emotionally and financially stressful. When it comes to insurance for consultants, it’s always better to be safe than sorry.
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