Professional liability insurance for therapists, sometimes called malpractice insurance for therapists, protects you financially in the event you’re sued by a client.
It can also cover the cost of defending your license to practice should anyone file a complaint against you.
Here’s a quick primer on professional liability insurance for therapists—what it is, how it works, and how to choose the right policy.
Do self-employed therapists need professional liability insurance?
In a word: Yes.
Beyond any local or state requirements that practicing therapists carry it, professional liability insurance could save you from shouldering a massive financial burden.
According to the American Psychological Association (APA), only about 2% of psychologists are ever sued for malpractice. But if you’re unlucky and you are sued, the financial impact could be serious.
According to a report released by the Healthcare Providers Service Organization (HPSO) and supported by the American Counseling Association (ACA), in 2019, the average cost of a malpractice suit against a therapist covered by insurers was $113,642.
For many self-employed therapists, a settlement of this size without the benefit of coverage would be disastrous.
Professional liability insurance and the cost of defending your license
Professional liability insurance doesn’t only protect you in the event you’re sued for malpractice. It can also cover costs associated with defending your license to practice.
Unlike malpractice lawsuits, which are typically filed only by current or former clients, almost anyone with some type of relationship with a particular therapist can initiate action against their license or certification to practice.
Not only clients but family members, members of your social circle, colleagues, past or present employers, and regulatory agencies are all able to file complaints against you.
The nature of those complaints can be wide-ranging, and touch on aspects of your personal life you might not immediately associate with your clinical practice. As the HPSO report notes, therapists can even have complaints brought against them for improper use of social media.
The same report says that the majority of claims (63.7%) are closed with no action taken by the licensing board. But they still have a serious financial impact: the average cost in 2019 of defending a license to practice was $5,454.
And that expense applied regardless of whether or not the complaint was settled in the therapist’s favor—simply covering the cost of legal fees and lost earnings, as well as associated travel, food, and lodging fees.
Finally, therapists are more likely to deal with licensing board complaints than malpractice lawsuits. Some reports claim that, over the course of 20 years in practice, 40% of therapists can expect to be faced with formal complaints.
How much does professional liability insurance for therapists cost?
According to Insureon, most therapists pay $800 or less annually for professional liability insurance, with only about one third paying over $800. The exact amount you pay will depend on the insurer’s individual risk assessment of your practice.
Other sources say that therapists paying for general liability insurance that includes professional liability insurance should budget $350 to $1,750 annually for coverage.
While it’s not cheap, the good news is that professional liability insurance is an “ordinary” and “necessary” business expense, so it’s tax deductible.
Why do therapists get sued for malpractice?
Any client may bring allegations against you, no matter how strictly you adhere to your code of ethics. There is no 100% surefire way of ensuring you will never be sued for malpractice as a practicing therapist.
According to the HPSO report, 36.4% of closed professional liability claims in 2019 were due to inappropriate sexual or romantic relationships between therapists and clients or therapists and clients’ family members.
After that, the five most common reasons therapists were sued for malpractice were:
- Failure to practice within the bounds of their competency (17.6% of all claims)
- Inappropriate sexual or romantic relationships with current supervisees (7.5%)
- Multiple relationships with a client despite the potential for client harm (5.9%)
- Sexual relationships with former clients or their family members before the five year waiting period had elapsed (4.4%)
- Improper sharing of information without client consent or legal justification (4.4%)
The top ten allegations brought against therapists who defended their licenses in 2019 were:
- Sexual misconduct (13.6%)
- Failure to maintain professional standards (12.3%)
- Breach of confidentiality (11.2%)
- Reporting to third parties (7.3%)
- Failure to practice within bounds of competence (7.1%)
- Failure to accurately present qualifications or credentials (6.5%)
- Issues with billing (6.2%)
- Failure to observe parental or familial rights to make decisions on behalf of minor clients (4.7%)
- Documentation issues (4.7%)
- Abandonment (3.2%)
If the potential allegations on this list sound severe, it’s important to remember that they can spring from clients’ interpretations of events, not objective truths.
For instance, a therapist treating a client for substance addiction could find themselves on the wrong end of a malpractice lawsuit if that client relapses. The client might allege that the therapist failed to prevent their relapse.
Or a therapist could recommend a client undertake a particular course of treatment, but if the client feels the treatment caused them harm or failed to work, they could choose to sue.
Therapists have even been sued for malpractice when a client they were treating harmed other people. After the 2012 Aurora movie theater shooting, in which 12 people died, one victim’s wife sued the gunman’s therapist for failing to hand him over to authorities after he voiced violent fantasies.
No matter how careful you are, there’s always a potential for a client to sue you. That being the case, professional liability insurance is just part of the cost of doing business as a therapist.
What does professional liability insurance cover financially?
The exact coverage you get from professional liability insurance varies according to the provider and the policy. In general, you can expect a standard policy to cover the cost of:
- Legal fees
- Arbitration fees, in the event you settle the matter outside of court
- Damages paid in the event you’re found liable
- Wages lost due to time spent on legal proceedings
- Travel and lodging costs incurred in the course of settling legal proceedings
You could incur some of these fees in the process of defending your license, too. Most therapists defending their licenses consult with attorneys at some point during proceedings, and pay the associated fees. And you may be required to travel or miss work over the course of your defense.
Important malpractice insurance jargon
Before you settle on a professional liability insurance policy, here are some terms you should familiarize yourself with:
- Claims-made coverage. Most professional liability policies are claims-made, meaning they only cover malpractice proceedings brought against a therapist after they’ve signed up for a policy.
- Prior acts coverage. Some policies allow you to opt for prior acts coverage, which covers you in the event a client sues for a previously unknown grievance that occurred before you signed up for your insurance policy.
- Tail coverage. After you retire, stop practicing due to disability, or die, tail coverage protects you in perpetuity. Any allegations made over your activities before you retired (but while you were insured) are covered.
How to get malpractice insurance for your therapy practice
In most cases, the same insurance provider who handles your general liability insurance and commercial property insurance will offer some form of professional liability insurance.
Many insurance companies offer business owner policies (BOPs) for small businesses. A BOP bundles general liability insurance and commercial property insurance into one package. BOPs typically do not include professional liability insurance, but check with your provider to be sure.
When considering a potential policy, take into account whether it includes coverage for license defense and coverage in the event of alleged sexual misconduct, which not all policies cover.
The cost of insurance is a standard budget item for most businesses. Learn how to create a budget for your therapy practice.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.
Bryce Warnes is a West Coast writer specializing in small business finances.