Key takeaways

• Every state licensing board requires you to carry malpractice insurance in order to practice therapy
• Malpractice insurance plans start at $99 per year for sole proprietors, but due to add-ons and LLC coverage you should expect to pay $400 or more
• Besides lawsuits, malpractice insurance covers the cost of defending your license in the event of a board complaint

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Malpractice insurance is a must for any therapist who plans to run their own practice. You need it in order to operate legally. And even if that weren’t the case, malpractice insurance protects you from potential legal fees that could sink your business.

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Here’s what you need to know about malpractice insurance, including the different types of coverage and what you can expect to pay.

How is malpractice insurance different from professional liability insurance?

The terms “malpractice insurance” and “professional liability insurance” are often used interchangeably. That’s because, for the most part, they’re identical. If you see professional liability insurance marketed to therapists, then you’re looking at malpractice insurance.

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The only exception is professional liability insurance marketed to the wider business community. These plans may include coverage beyond malpractice that isn’t a sensible fit for your therapy practice. Be sure to review the terms of any professional liability insurance you’re considering to make sure it’s the right choice. Ideally, any plan you choose should be specifically designed for therapists.

What does malpractice insurance cover?

Malpractice insurance protects you in the event you’re sued by a client. It typically covers the cost of:

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• Legal fees
• Arbitration fees for out-of-court settlements
• Damages you pay in the event you’re found liable
• Earnings lost due to time spent on legal proceedings
• Travel and lodging costs incurred in the course of legal proceedings

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If a complaint against you is filed with your licensing board, malpractice insurance also covers the cost of defending your license.

How much does malpractice insurance cost?

The median cost of malpractice insurance purchased by therapy practices is $56 per month, or $672 per year.

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The least expensive policies start at around $400 annually (roughly $35 per month), while more expensive policies may range as high as $3,000 per year ($250). 

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While some policies start as low as $99 per month, factors like your business structure (which can increase the cost of coverage) and the need to purchase add-ons makes $400 a more likely number.

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Inexpensive policies usually only include standalone malpractice insurance, with no additional coverage. Policies at the higher end of this range come bundled with other types of small business insurance, typically:

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• General liability insurance, protecting against third-party claims of bodily injury on your property or injury done to their own property. (Median cost: $29 per month.)
• Cyber liability insurance, covering expenses associated with data breaches and cyber crimes. This is important when you process payments and communicate with clients online. (Median cost: $134 per month.)

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Both general liability and cyber liability insurance are important for protecting your business. It’s worthwhile to consider a package bundling them with malpractice insurance.

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These numbers are benchmarks. In practice, the amount you pay for malpractice insurance is affected by your:

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• Business type (LLCs and PLLCs pay more than sole proprietors)
• Specialization (eg. working with trauma, addictions, or high-risk populations may increase your premium)
• Claims history (whether you have filed claims in the past, and for how much)
• Location (insurance markets vary from state to state)

Do you need malpractice insurance to practice therapy?

Yes. Every state licensing board requires members to carry malpractice insurance in order to practice therapy.

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If you rent office space, you may be required by your lease to carry additional coverage, such as general liability and commercial property insurance. 

What are the most popular malpractice insurance providers for therapists?

The biggest insurance providers for therapists include:

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• CPH & Associates. Covering most mental health professions, with over 500,000 enrollees in the past decade. Malpractice insurance starts at $115 per year.
• Healthcare Providers Service Organization. Covering health practitioners broadly, but including specialized coverage for mental health workers. Malpractice insurance starts at $99 per year.
• CM&F Group. Covering healthcare workers broadly, with specific plans for therapists and counselors. CM&F Group has a no-settle policy, meaning you are never pressured to settle claims outside of court.
• Proliability. Covering healthcare workers including therapists and counselors. They offer the highest limit ($50,000) for HIPAA defense. Coverage starts at $125 per year.
• Preferra. A Risk Retention Group (RRG), which is federally authorized and owned by its members. It covers social workers, licensed therapists, psychologists, and other mental health workers. Preferra does not offer coverage for LLCs.

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It’s important to carefully review the terms provided by each insurer before making a decision. Factors like your business structure and specializations can affect your premium. 

Does malpractice insurance cover telehealth?

The most popular insurance plans for therapists provide telehealth coverage, meaning you are covered regardless of your client’s location when you practice remotely. 

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But not all plans offer this type of coverage. Carefully review each plan to make sure it meets your needs. The key term to look for here is “portability.” A plan with portable coverage, that specifically mentions telehealth in its terms, will protect you when treating clients remotely.

Does malpractice insurance cover HIPAA?

A malpractice insurance policy that includes coverage for HIPAA helps pay your legal defense costs in the event you’re investigated or sanctioned for HIPAA violations.

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Importantly, HIPAA coverage does not replace HIPAA compliance. And it doesn’t pay every possible fine or cover the full scope of a data breach in the event you’re found liable.

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Many providers include HIPAA coverage in their malpractice insurance, with coverage limits ranging from $15,000 to $50,000. Others offer it as an add-on.

Does malpractice insurance protect against license complaints?

Malpractice insurance typically covers the cost of defending your license if a complaint against you is brought to your licensing board.

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Anyone—not just clients—can file a complaint. And complaints may touch on aspects of your personal life, not just your conduct as a therapist. Some therapists have even had to defend their licenses because of complaints that they made improper use of social media.

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According to an HPSO report, in 2024 the average claim for license defense was $5,524. That includes the cost of legal defense, travel and lodging, and earnings lost due to time spent on the defense.

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Malpractice insurance can cover those fees. The most popular plans for therapists offer coverage of up to $25,000 to $35,000 per defense. That amount isn’t an annual limit—it resets with each defense proceeding.

What is prior acts malpractice insurance?

Prior acts malpractice insurance covers you in the event you’re sued (or a complaint is filed) for actions you took before your coverage began. Claims-made coverage, in contrast, only covers you for activities after your policy’s start date. 

What is tail coverage?

Tail coverage is an insurance add-on you can choose to include with your policy. With tail insurance, you’re covered for any events that occurred during your coverage period into the future. Some tail coverage add-ons last a certain number of years, while others continue indefinitely.

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Example: You have an insurance policy with Carrier A. You decide to switch insurers, ending your Carrier A policy and signing up with Carrier B. Before you make the switch, you purchase tail coverage from Carrier A. After you make the switch, a former client sues you for misconduct that occurred while you were covered by Carrier A. Even though you’ve switched insurers, Carrier A covers you with the tail coverage add-on.

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Tail coverage is typically purchased with a one-time payment, with costs ranging from 100% – 200% of your annual premium.

What is occurrence coverage?

Occurrence coverage is a type of malpractice insurance policy. It covers you from your policy’s start date indefinitely into the future. In effect, it’s a policy that comes with tail coverage built in from Day One. Even after your policy ends, any lawsuit brought against you for actions taken during your coverage period is covered.

What is claims-made coverage?

Claims-made coverage is a type of insurance policy that only covers you while the policy is active. 

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For instance, if your policy ends, and a client then sues you for actions taken while the policy was active, you can’t file a claim with your former carrier. 

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In that event, you have two options:

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• Tail coverage. Purchasing tail coverage as an add-on to claims-made coverage will protect you from future lawsuits.
• Prior acts coverage. Purchasing prior acts coverage from your new provider will cover you for lawsuits brought against you for actions taken while you were under your previous policy.

Is malpractice insurance tax deductible?

Yes, the cost of malpractice insurance is tax deductible as an ordinary business expense.

Summary

• While bare-bones plans start as low as $99 per year, plan to budget at least $400 for necessary add-ons
• General liability and cyber liability are both important, and bundling them with malpractice insurance may reduce the total cost
• Look for occurrence coverage—it protects you after your policy ends and saves you having to buy tail coverage
• If you choose claims-made coverage, be prepared to buy tail coverage as an add-on before you switch policies
• Malpractice insurance can cover the cost of proceedings for a HIPAA violation, but it won’t cover every fine you might be required to pay
• If you treat clients remotely, confirm that any policy you purchase includes coverage for telehealth (often referred to as plan “portability”)
• Carefully review and compare policies—they offer different coverage limits, add-ons, and terms, and there’s no one-size fits all solution

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