Do Consultants Need Professional Liability Insurance?
Sole proprietor consultants may be personally responsible for damages without professional liability coverage.
Many, or all, of the products featured on this page are from our advertising partners who compensate us when you take certain actions on our website or click to take an action on their website. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money.
Updated · 1 min read
Written by
Senior Writer 
Edited by
Assistant Assigning Editor Consultants should have professional liability insurance. We recommend it for any business that provides services or advice for a fee, including contractors.
Clients may also ask for proof of coverage before agreeing to do business with you or your firm.
Save up to 30% on business insurance
NerdWallet Small Business helps you get real-time quotes from 30+ insurers, and instant access to your Certificate of Insurance (COI) through our partner, Coverdash.
What is professional liability insurance?
Professional liability insurance covers defense costs and damages if your business is sued for negligence, neglect, mistakes or misinformation, whether those claims have a basis or not.
Without it, your business is on the hook for any legal costs. A lawsuit could bankrupt your business — or you personally, if you operate as a sole proprietor.
What does professional liability insurance cover?
Professional liability insurance (also known as errors and omissions insurance) can kick in to cover you in scenarios like the following.
Bad advice
Consultants are hired for their expertise in a specific area. But if a client feels your recommendation harmed their business and cost them money, they can attempt to hold you accountable.
This can have added implications for IT and software consultants, since bad advice could expose company or customer data. Some insurance providers offer "technology errors and omissions" coverage, which bundles professional liability and cyber liability insurance.
Compliance and reporting errors
Human resources and management consultants may be commissioned to gather and analyze data for reports or projects. Inputting incorrect figures or overlooking an important detail could cost your client money and spur a lawsuit against your consulting business.
Professional liability insurance would cover attorney fees and defense costs, among other expenses.
Missed deadlines
A client can sue if you don't complete work in the agreed-upon time, even if you aren’t directly at fault. If you have professional liability coverage, you won’t be personally liable for any damages awarded as a result.
Save up to 30% on business insurance
NerdWallet Small Business helps you get real-time quotes from 30+ insurers, and instant access to your Certificate of Insurance (COI) through our partner, Coverdash.
How much does professional liability insurance for consultants cost?
The median annual cost of professional liability insurance is $1,800 for a business and management consulting company, according to data shared with NerdWallet by online insurance agency Coverdash.
Costs can vary depending on the specifics of what your business does. Here are median annual premiums for other types of consulting, according to Coverdash:
- Marketing consulting: $1,500 per year.
- Software consulting: $1,800 per year.
- Software developers (technology E&O): $2,000 per year.
- Safety consulting: $2,200 per year.
- Software publishers (technology E&O): $2,200 per year.
- Financial management consulting: $2,800 per year.
The cost of professional liability insurance also depends on your coverage limits, the size of your consulting firm and whether you've had any prior claims.
Other important insurance coverage for consultants
Your business may also need other business insurance policies. The most common include:
- General liability. Covers against third-party injuries (physical and personal), accidents and property damage. We recommend this to all businesses.
- Commercial auto insurance. Similar to personal auto insurance, but covers vehicles used for business purposes. Consider commercial auto insurance if you often drive to work sites.
- Business property insurance. Covers damage to your company’s property and on-site physical assets. Buy property insurance if you have valuable business equipment, like work computers. You may need it if you sign a commercial lease.
- Workers’ compensation. Covers care and compensation if an employee is injured on the job. Your state may require you to carry workers' comp if you have employees.
