Professional liability insurance protects self-employed people and freelancers against financial losses resulting from professional errors. It's required by law for certain professions, such as doctors and architects. Even without it, it's very useful!
Anyone who makes mistakes in their professional life, whether as an entrepreneur or self-employed person, must be held accountable for the resulting damages and may have to pay substantial compensation. This usually puts not only professional assets at risk, but also personal assets. Professional liability insurance is available to protect your business from such risks. But what does professional liability insurance cover? Who needs professional liability insurance, and what should you look out for? We provide simple answers to the most important questions.
Professional Liability Insurance Simply Explained
Professional liability insurance applies when self-employed individuals cause damage to another through their professional activities and are held liable for it.
Unlike employees, who are usually insured by their employer, self-employed individuals and freelancers must cover their mistakes with their professional and personal assets.
In any case, a responsible professional should conduct a thorough risk analysis of their business. Risks that are difficult to calculate or that push entrepreneurs and self-employed individuals to their financial limits can be cost-effectively covered with professional liability insurance.
Professional Liability Insurance: What is Covered?
Professional Loss Insurance (PLI): Professional loss insurance covers so-called real financial losses. Real financial losses are financial losses that are not personal injury or property damage.
This is the case, for example, if you, as a consultant, make a mistake while providing your consulting services or make a misjudgment that has a direct negative impact on your client's revenue/profit during that time. Consulting errors can lead to significant financial losses. Legal and court fees are usually also added to the mix. Professional liability insurance that focuses on covering real financial losses is often somewhat "cumbersomely" referred to as professional loss liability insurance.
Business Liability Insurance (BLI): Business liability insurance can be integrated into professional liability insurance, but it doesn't have to be. Self-employed individuals should be very careful here. Business liability insurance covers the classic risks of an established business – including office operations. These are only personal injury and property damage. If you operate an office or other business premises, you should consider taking out such insurance. The same applies if you travel on business, visit customers, or trade fairs – private liability insurance doesn't cover these.
When does professional liability insurance pay out?
Professional liability insurance applies, for example, when a third party claims damages from the policyholder. There are two scenarios:
The claim is justified: If the insured has actually caused damage to a third party (for example, customers or clients), the actual amount of the damage is first determined in cooperation with the insurer. Once the actual amount of damages has been determined, the insurer will pay the damages.
The claim is unjustified: If the insured receives a claim for damages that is unjustified – or at least disputed – the passive legal protection included in professional liability insurance applies. Professional liability insurance covers the costs (such as legal fees and expert witness fees) of defending against an unjustified claim.
In both cases, it is important that the insured contact their insurer immediately upon receiving 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.
Exali
exali AG, based in Augsburg, specializes in professional liability insurance for the self-employed, freelancers, and companies. Its focus is on digital industries such as IT, media, consulting, and e-commerce. exali offers customized, modular insurance solutions that can be purchased and managed entirely online. With over 17,000 customers in 28 European countries, the company is characterized by fast service, transparent processes, and personal support.
Robert Reiz | 04. Mai 2025 | 19:54 UTC 
