The whole area of professional / business insurance can be somewhat confusing and the terminology can be confusing as well. On top of that, many people use some terms interchangeably (incorrectly) which adds to the confusion.
Let’s see if I can provide some clarity about the different types of business insurance and what they are used for. I’m not an insurance agent but I’ve run my own business for 15 years, written a book and teach classes on business start-up and I consult and coach with entrepreneurs of all types, so this is an area that I feel very familiar with.
There are three primary categories of business insurance:
- Commercial auto insurance – a must if you have delivery van or are regularly (daily, weekly) driving around clients
- Commercial property insurance – to protect your business assets such as your computer, phone, books. You can typically get an inexpensive “rider” onto your homeowners or renters policy for any additional equipment or property you have for your business.
- Commercial (or business or professional) liability insurance – this is the most confusing category, so the rest of this article will be devoted to this kind of insurance.
There are two primary types of professional / business liability insurance: “General Business Liability” and “Professional Liability.”
These two types of insurance cover VERY different events and have big differences in price tags. So it’s important to be clear with yourself and your client which one you want to carry and they want you to have. They are not inter-changeable.
(Side note: I’ve found that often the clients are confused as well about what kind of insurance they’re asking for, so as you become more knowledgeable you can explain the difference to them. I’ve had several client companies say that they want “professional liability” and when I talked with them it turned out that what they really wanted was “general liability.” So, don’t assume that when a company asks for a type of insurance that they are really clear on what that insurance is for. Ask questions and find out what kind of event are they wanting insurance for – more about this below.)
General Business Liability Insurance is sometimes called “trip and fall” insurance as it is most often used for that purpose. This insurance covers accidents – events that typically aren’t directly related to the type of work you’re doing. This is a fairly inexpensive type of business insurance, often part of a small business insurance package that covers physical damage or injury or libel / slander.
Example events that would use this kind of insurance: you drop a flip chart on someone’s toe, break a piece of equipment, someone trips and falls at a workshop you are leading, etc. I get my small business policy through State Farm for ~$500 a year with a $2m general business liability umbrella. General Liability small business packages are available through many insurance companies. I strongly recommend that you have this type of basic business insurance whenever you are doing any type of in-person work with clients (including your own workshops or just in-person coaching sessions). If all of your work is strictly over the phone, you don’t need this type of insurance.
Professional Liability Insurance (often called Errors & Omissions Insurance or E&O), on the other hand, is a very different type of insurance. This type of policy insures the quality of your work and that the deliverable you produce is of high quality, comprehensive, and reliable. In the medical world, this type of insurance is called malpractice insurance. In the services world, it’s called Professional Liability Insurance or Errors & Omissions Insurance (ie it insures that there won’t be any errors or omissions). This type of insurance is very expensive, at least for a solo professional. The lowest cost in California is $2K a year and that is with very high deductibles and lots of waivers and exemptions. The cost varies tremendously based on the type of work you are doing, $2K is just the cheapest. Many insurance companies will not provide Professional Liability / E&O insurance for solo-preneurs or home-based businesses, and some insurance companies won’t insure coaches because they equate coaching with therapy.
Hopefully you can see that these two types of insurance are very different in nature (and cost) and cover very different situations.
It’s been my experience that companies may use the term “professional liability insurance” and actually mean “General Business Liability Insurance”. Contracts are developed by corporate lawyers, and not insurance experts. Companies want to make sure that you have some kind of business insurance (in case you break something or injure someone) and they also don’t realize that the term “professional liability insurance” actually refers to E&O insurance.
So if your client / client company requires “professional liability insurance” make sure to ask them what type of event or situation are they hoping to insure against. Is it in case someone gets physically hurt or something broken? Or is it the quality of my work? (If they say “quality of my work” ask them how they would judge the quality of your coaching. What specific outcomes are they looking for?) My guess is that 9 times out of 10 the answer you’ll receive back will be along the lines of General Business Liability Insurance.
I’ve run my own business for 15 years and coached at the C-Suite level in several Fortune 500 companies and I have never had to get Professional Liability insurance, only General Liability. However I know that there are companies who require E&O for coaches working with Executives and upper management.
Ask yourself – are you really doing the type of work that could have a direct material impact on the company’s financial and/or legal standing? That is often the test to determine if E&O is needed. E&O is very common for lawyers, accountants, financial advisors, and legal advisors. Also, to have E&O you need to be clear with your client about what is defined as “high quality” coaching vs. coaching which is in “error.” This is a great question to discuss with your client if they want you to have E&O. It’s important to remind the client that one of the cores of coaching is that the client makes the decisions of what actions to take in a coaching relationship, not the coach.
Please keep in mind that the client’s contract template isn’t written in concrete. If there is something in it that you don’t agree with, ask about it and state your case. Even if the client says they want Professional Liability Insurance, ask yourself if you feel that it is warranted. If not, push back and tell them why it’s not warranted.
Also, I want to make sure that you know that any kind of personal liability insurance (say homeowners, renters, or a personal liability umbrella policy) will NOT cover you in a business situation! The exclusions in personal insurance contracts are very clear – personal insurance only covers you when you are on personal time, not working time. Should anything ever happen, one of the first questions the insurance representative will ask is “What were you doing here?” or “What was going on when this happened?” If they feel that you were engaged in work, they will quickly dismiss your claim. I’ve heard too many horror stories of folks thinking they were covered during business events by their personal insurance only to discover that wasn’t the case. Please don’t make this mistake.
I hope this has helped clarify a potentially confusing subject. Although I hope that you will never need to fill an insurance claim, I also want to make sure that you have the right insurance should you ever need it. Best wishes for the success of your company!
Dorcas Kelley CPCC CMC PCC
Helping you make the leap from “coaching skills” to “coaching profession”
Author – “The Business of Coaching” (http://www.thebusinessofcoaching.com)
President – Clarity In Action LLC (http://www.clarityinaction.com)