Differences between professional and liability insurance
Entrepreneurs, small and large, can face various business risks. Just as for private individuals, entrepreneurs can also cover such risks with insurance. Two examples of insurance that is often taken out are professional and (business) liability insurance. What are the differences between the two insurance policies? Do you need both as an entrepreneur? You can read more about this in this article.
Entrepreneurs face various business risks
As an entrepreneur you offer various services, carry out assignments for clients or sell individual products. In each of these situations you may be confronted with business risks. Consider, for example, a financial advisor who makes a mistake when calculating an organization's budget. Or think of a carpenter who accidentally uses the wrong type of plug when carrying out a job. Such errors can lead to damage. In the first case, the client may be faced with financial damage; investments may be made that later turn out to be impossible. In the second situation, a lamp or painting, for example, may fall off the wall because the plug is not strong enough for this.
Damage resulting from this situation will be recovered by the customer from the executing party, the company. In the case of a private company (BV), this can jeopardize the financial stability of the organization. With a sole proprietorship, the risks are even greater: in this case, the entrepreneur is privately liable for the damage suffered by the customer. Taking out professional and liability insurance will help prevent this.
Coverage of a (business) liability insurance
Liability insurance covers damage, in the form of a claim, as a result of injury caused to others. Damage to other people's belongings can also lead to a significant damage claim, which is covered under (business) liability insurance.
(Business) liability insurance does not only concern damage caused by your own actions or that of an employee. For example, consider damage resulting from a product you have sold. As well as damage caused to rented objects will be reimbursed from the coverage of this insurance. Think of a construction company that rents heavy tools to carry out a job.
Damage caused intentionally is under no circumstances covered by (business) liability insurance. The same applies to damage caused by violating the law. Damage to yourself or your own property is also not covered by (business) liability insurance.
Professional liability insurance provides coverage for professional errors
In addition to (business) liability insurance, entrepreneurs can take out professional liability insurance. This is also called BAV insurance. A professional error can occur during the performance of work. Consider, for example, an error when calculating a budget, or a miscalculation when developing an investment plan. Such professional errors can have major consequences for a client, resulting in a high claim for damages for the entrepreneur.
Professional liability insurance reimburses the costs arising from such a claim. Not only the claim to compensate the damage suffered is covered by professional liability insurance; the same applies to the costs arising from legal assistance to demonstrate that a company cannot be held liable. This legal assistance is especially desirable in difficult issues such as liability for professional errors.
Tip: pay attention to the differences between insurance policies, some professional liability insurance policies are aimed at specific sectors. Consider the healthcare sector.
Damage resulting from your work as a director or supervisor is not reimbursed by professional liability insurance. As with (business) liability insurance, damage caused by an intentional error will under no circumstances be reimbursed. The same applies to damage resulting from fraud or, for example, property crimes.
Do you work as a financial advisor and have you promised a buyer a certain return on their investment? Even in that case, the damage resulting from failure to achieve these returns will not be covered by professional liability insurance.
Take the preliminary risk into account
When you compare the (professional) liability insurance for self-employed persons from different Dutch insurers, you will soon come across the term “pre-risk”. The advance risk means the damage resulting from an incident that occurred before the commencement date of the insurance. Consider, for example, an error in the construction of a building. If the resulting damage is only visible after the commencement date of the insurance, it falls under the advance risk. There are insurers who co-insure the advance risk. This is an important advantage over insurers who do not do this. Please check specifically which risk is included in the insurance; It may happen that, for example, the preliminary risk in construction does not count.
Please note, only damage that was not yet known when the insurance was taken out will be insured. Does it concern damage for which you already knew that a claim for damages would be submitted? In that case, this does not fall under the advance risk.
Possibility to co-insure the after-risk
Not only can the advance risk be insured when taking out (professional) liability insurance. The same applies to the so-called “after-risk”. The after-risk is the damage that only becomes apparent when the policy is terminated. It must concern damage caused during the term of the (professional) liability insurance. This after-risk is often not insured as standard; it is an option that you can choose when taking out the insurance. Here too, only damage that you were not aware of can be covered by insurance.
Numerous other insurance policies for entrepreneurs
In addition to professional liability insurance and (business) liability insurance, there are numerous other insurance policies for entrepreneurs. Consider, for example, legal expenses insurance for companies. If you trade as a sole proprietorship and have taken out private legal expenses insurance, you cannot use it for matters related to your business. With legal expenses insurance for companies, the costs arising from seeking legal assistance in conflict situations are reimbursed. It is very wise to take out legal expenses insurance for entrepreneurs, as the risk of conflicts with suppliers and, for example, clients constitutes a serious business risk.
Cyber insurance is also increasingly taken out by entrepreneurs. The risk of a cyber incident has increased in recent years. In the event of a cyber incident, it is useful for an entrepreneur to be supported by an advisor from the insurer. How should you act in the event that you become a victim of a cyber incident? Not only do you ensure yourself of this support with cyber insurance; the financial consequences of cybercrime are also covered.