How Much Will Professional Liability Insurance Cost a Small Business In New Mexico?

Even if you are a highly skilled expert in running your business, mistakes can still happen. If your customer or client believes that they have incurred financial loss or bodily injury because of the mistakes made by your professional services, they can sue you. In this situation, professional liability insurance will come in handy. 

How Much Does Professional Liability Insurance Cost?

Typically, you can expect to pay somewhere between $300 and $5,000 every year for a small business for professional liability insurance. The total cost of coverage will vary for each business and will be based on certain factors, including:

• Nature of business
• Coverage limits
• Location of your business 
• Claims history
• Number of employees
• Number of years in business
• Deductible amount (the amount you choose to pay towards the cost of a claim)
• The amount your business earns every year

The higher your deductible, the lower your policy will cost. But you must ensure that if a claim does come up, you will be able to pay the amount you need to pay. 

Also, you should be careful while choosing the coverage limit because choosing higher coverage will cost you more. An easy way to determine how much professional liability coverage your business needs is by thinking of a worst-case scenario and then choosing a figure that you can actually afford. 

You also have various payment options available so you can spread the cost of the policy according to your budget. Here is an example of how the cost of professional liability can split:

The needs and requirements of every business are different, and a lot of different factors impact the cost of your premiums. You can speak to an insurance consultant to get an accurate quote according to the needs and requirements of your business. 

What is Professional Liability Insurance?

Professional liability insurance, also called Errors and Omissions (E&O) insurance or professional indemnity insurance, is a type of commercial insurance that offers coverage for businesses and professionals to protect against claims of negligence from customers or clients. This particular coverage helps cover you and your company if you make any inadvertent mistakes in the course of operations. 

The insurance policy generally covers personal injury, copyright infringement, negligence, and much more. The claims covered in a professional liability policy may include damages caused by things you did or the things that you should have done. 

Why Should Small Businesses In New Mexico Get Professional Liability Insurance?

If you own a small business in New Mexico and regularly work with clients, purchasing professional liability insurance is something you shouldn’t neglect. If a client or customer decides to sue your business, professional liability insurance will cover the cost of legal expenses whether you win or lose. Lawsuits can be very expensive, and if business owners don’t have professional liability coverage, they could expose their business to the risk of bankruptcy. 

Professional liability insurance is one of the most valuable commercial insurances any small business can have. Professionals who have expertise in a specific field mostly require this type of coverage because general liability insurance does not offer protection against claims arising out of professional or business practices, including misrepresentation, malpractice, or negligence. 

You should consider purchasing professional liability insurance if your business:

• It is requested by a customer to have professional liability insurance to complete a contract
• Regularly offers advice to customers
• Provides a professional service 

What is Covered Under Professional Liability Insurance?

Professional liability can cover the cost of legal defense, including the cost of hiring an attorney when a dissatisfied client or customer sues over a mistake made by your company. 

Here is what professional liability insurance covers:

• Missed Deadlines
• Accusations of Negligence 
• Undelivered Service
• Work Mistakes and Oversights

Missed Deadlines

If you or one of your employees misses a deadline, it can have devastating repercussions for a client. So, if a client decides to sue you due to late work or delay, professional liability insurance can provide sufficient protection. 

Let’s consider an example. Let’s suppose a taxpayer misses the deadline to file taxes for one of their clients for which the IRS fines the client. Subsequently, the client sues the business to recoup the cost of the penalty. In this case, professional liability insurance will be used to cover the amount that the court rules he must pay the client and the cost of hiring a lawyer. 

Accusations of Negligence

Your business could face a professional liability lawsuit if it is accused of negligence, like failure to meet industry standards.

For example, if an architect fails to meet the standards and specifications of a blueprint while designing a building, the client can file a lawsuit based on accusations of negligence. If the architectural firm has professional liability insurance, they will be able to cover the cost of claim settlement. 

Undelivered Service

If your business fails to deliver a promised service, the customer has the right to sue, especially if the undelivered service causes a negative impact on them.

For instance, if you are a management consultancy firm and your company promises a corporate client that it will increase its profits by 30% on a certain date, but then the date arrives, the profits don’t go up as promised or presented. If the company decides to sue your business because of financial loss and trouble, professional liability insurance can cover up the cost of legal expenses. 

Work Mistakes and Oversights

At times a simple mistake can result in a huge loss of money for your clients or customers. Professional liability insurance can help cover the cost of legal defense and hiring an attorney when a client sues over an error made by your company. 

Let’s consider the example of an accounting firm where one of the accountants incorrectly enters the financial transactions of a particular company into a spreadsheet. As a result of the incorrect entry, the company faces substantial loss due to inaccurate budget projections. The company, after finding the error, files a lawsuit against the accounting firm. In this situation, especially if it is a small business, it will be difficult to cover the cost. Thus, professional liability insurance will provide adequate coverage for the eventual settlement. 

What Is NOT Covered Under Professional Liability Insurance?

Your client can still decide to sue your business if they believe that you have made a mistake, even if you did not do anything wrong. If you don’t have sufficient coverage, you will have to pay the hefty expenses out of your own pocket. However, it is important to remember that this type of coverage does not cover everything. For instance, it won’t help your small firm with the following types of claims:

Data Breaches

You will have to get cybercrime insurance if you lose one of your client’s or customer’s private, important, and sensitive data due to fraud or cybercrime.

For example, if a client provides personal financial details to a consultancy firm and the servers get hacked, the cost of a data breach will not be covered under professional liability insurance. 

Work-Related Illnesses or Injuries

Professional liability insurance does not provide coverage to employees when they get injured or sick on the job. For this, you will have to get worker’s compensation insurance to help them recover and return to work. 

For example, if a janitor sustains an injury while lifting up a heavy object at work, worker’s compensation insurance can cover the cost of damages and medical expenses. 

Property Damage or Bodily Injury

Suppose someone gets injured on the premises of your business or you damage someone’s property. In that case, you will have to get general liability insurance to cover the cost of damage and to repair or replace the damaged item. Property damage or bodily injury will not be covered under professional liability insurance.

For example, if one of your clients trips and falls on the floor of your business and breaks their leg, a general liability policy can cover the cost of medical treatment and therapy. If the client decides to sue, the policy can cover the cost of hiring a lawyer. 

Employee Discrimination

Employee discrimination is not covered under professional liability insurance. This includes cases of wrongful termination, harassment, and discrimination. 

For example, if a female worker and a male worker are performing the same tasks and are at the same designation, but the male worker is being paid higher than the female, she can sue the company. However, this form of employee discrimination will not be covered under professional liability. 

Damage to Company Vehicles

Vehicles that are owned by the business should be covered under commercial auto insurance. If one of your employees causes damage to the vehicle while on their way to meet a client, the cost of damage will not be borne under professional liability insurance. 

How Does Professional Liability Insurance Work?

Professional liability insurance is a different type of coverage that is not offered under business owner’s policies, home business policies, or homeowner’s endorsements. Plus, it only provides coverage for claims made during the policy period. Since professional liability insurance coverage is generally arranged on a claims-made basis, the coverage remains good only for claims that are made during the policy period.  It also includes a retroactive date and an extended reporting period.

Retroactive Date

The retroactive date implies that you are covered for incidents that may occur on or after a specified date in your policy. 

Extended Reporting Period

The extended reporting period helps to provide coverage for claims that arise within a specific period of time after the policy has expired. Ideally, it is a 30–60-day period, but if you wish to extend the period to a year, you will have to incur additional costs.

Hence, the insurance company will only accept claims that are made against your business within the policy term or during the extended reporting period. Plus, the claim should be from a covered omission or error that occurred after the retroactive date of your policy. 

What Types of Businesses In New Mexico Require Professional Liability Insurance?

Although professional liability insurance is not required by law, medical centers and some other specific small businesses should have professional liability insurance to cover unexpected costs. Here are some of the small businesses that should purchase professional liability insurance:

• Investment advisers
• Mental health counselors 
• Accountants
• Personal trainers
• Management consultants
• Software developers
• Photographers 
• Architects
• Salon services
• Real estate agents and brokers
• Insurance professionals
• Occupational therapists 
• IT experts 
• Graphic designers
• Engineers

However, the above list is not comprehensive, and other types of small businesses should also get the right type of insurance for financial protection. Whether you own a small business that is gradually growing or starting a new business, getting the right type of insurance for your business should not be neglected. 

Professional liability insurance is used in businesses to protect against claims of negligence. Many types of businesses require professional liability insurance to protect professionals and business owners from the risk of having to pay out of their own pockets. Professional liability insurance also helps to cover the cost of inaccurate information and negligence due to an error. 

Therefore, anyone offering professional services directly or indirectly to their customers or clients or giving advice to another business should have professional liability insurance. Many small businesses in New Mexico have been safeguarding their operations through this type of insurance.