What is professional liability insurance?

Entrepreneurs or self-employed persons who make mistakes in their work have to take responsibility for the damage caused and may have to pay high damages. In most cases, not only professional but also private assets are at risk. Professional liability insurance is available to protect one's own business from such dangers. But what does professional liability insurance cover? Who needs professional liability insurance and what do you have to look out for? We provide simple answers to the most important questions.

Unlike employees, who in most cases are covered by their employer, self-employed persons and freelancers have to pay for mistakes with their professional and private assets.

In any case, a responsible professional should conduct a thorough risk analysis of his or her business. Risks that are difficult to calculate or that push entrepreneurs and self-employed people to their financial limits can be covered cost-effectively by professional liability insurance.

Professional liability: What is insured?

Wealth loss liability insurance (VSH):

A pecuniary loss liability insures so-called genuine pecuniary losses. A genuine pecuniary loss is a financial loss that is not personal injury or property damage.

This is the case, for example, if you as a consultant make a mistake in the provision of your consultancy services or are subject to a misjudgement that has a direct negative impact on your client's turnover/profit at the time. Consultancy errors can lead to high financial losses. On top of that, there are usually legal fees and court costs. Professional liability insurances that focus on real financial losses are often referred to somewhat "awkwardly" as pecuniary loss liability insurances.

Business liability insurance (BHV):

Business liability insurance can be integrated into a professional liability insurance policy, but it does not have to be. Self-employed persons should be very careful here. Public liability insurance covers the classic risks of an established business - including office operations. These are only personal injury and property damage. So if you run an office or other business premises, you should consider taking out such insurance. The same applies if you go on business trips or visit customers or trade fairs - because private liability insurance does not pay here.

When does professional liability insurance pay?

Professional liability insurance takes effect, for example, when a third party claims damages from the policyholder.

There are two scenarios:

The claim is justified:

If the insured person has actually caused damage to a third party (for example clients or customers), the actual amount of the damage is first determined in cooperation with the insurer. Once the actual amount of damage has been determined, the insurer will pay the compensation.

The claim is not justified:

If the insured person receives a claim for damages that is not justified - or at least disputed - the passive legal protection, which is integrated in the professional liability insurance, takes effect. In this case, the professional liability insurance covers the costs (for example, lawyer's fees and expert's fees) for the defence against an unjustified claim.

In both cases, it is important that the insured person contacts his/her insurer immediately when he/she receives the claim for damages. This ensures that the self-employed person receives full (financial) support, regardless of whether a claim for damages is justified or not.