Professional Indemnity Insurance
If you run a business that offers professional services or advice to clients, then you should consider getting professional indemnity insurance. No matter how much confidence we have in our own ability to deliver top quality services and advice, mistakes can happen. If a client of yours ends up losing money owing to a fault of your business, they could claim compensation against you. Professional indemnity insurance can protect you against the costs involved with making expensive mistakes.
In This Guide:
- What is professional indemnity insurance?
- What does professional indemnity insurance cover?
- How does professional indemnity insurance work?
- Do I need professional indemnity insurance
- What level of professional indemnity insurance cover do I need?
- How do I get the best professional indemnity insurance?
What is professional indemnity insurance?
Professional indemnity insurance is a type of cover that is used for businesses that provide professional services, give professional advice or handle clients’ intellectual property or data. Also known as PI insurance, it is often included as a part of your standard business insurance. It covers the costs of any compensation claims made against you or your business if a client has lost money due to any advice or service you have given them.
What does professional indemnity insurance cover?
Professional indemnity insurance will usually cover you for a variety of situations. These include:
- Any money or business lost by a client because of your negligence, or a mistake on your part.
- Any money or business lost by a client that resulted from misinformed or wrong advice that you gave.
- Any money or business lost by a client because of a loss of or mishandling of sensitive, confidential information or financial data.
- Any money or business lost by a client via damaged reputation that resulted from your work or advice, or through a breach of copyright.
How does professional indemnity insurance work?
To be eligible to claim on your professional indemnity insurance, you must have been covered both at the time the situation in question occurred, for example in a meeting where you gave damaging advice, and at the time any compensation claim was made against you.
Typically, a professional indemnity insurance policy will come with a maximum indemnity limit. This is will be an agreed maximum amount of money that your insurance provider will pay out over the course of your term. For example, for a one-year policy, if you have a maximum indemnity limit of £1 million, then your insurer can pay out in total anything up to that limit over the year. Most policies will allow you to make as many claims as you like, as long as you stay within the limit.
However, each claim will come with an excess that you must pay, typically around £250. Your insurer will then pay to cover the costs of any compensation, legal fees and lost business.
Do I need professional indemnity insurance
Unlike some other business insurance products, such as employers’ liability insurance, professional indemnity insurance isn’t required by law. Whether you need it or not will depend of the nature of your business. However, some industries will require that you have a policy in order to be a registered member of their professional body. In most businesses that involve giving professional services or advice it will be required, or at least advisable, to have professional indemnity insurance. These jobs include:
- Accountants and financial advisors/consultants
- Solicitors and lawyers
- IT and engineering contractors
- Private teachers/tutors
- Architects, surveyors and designers
- Private doctors, nurses or other medical professionals
What level of professional indemnity insurance cover do I need?
The level of cover you need will again depend on the nature of business you’re in. In some industries, especially ones that work on a contract basis, you should check with your clients to see what level of cover you’re expected to have. For example, if you’re designing a building for a waste management company, it should be stated in the contract what minimum level of cover you are expected to have, say £100,000. This is the maximum amount your insurance will pay you when you make a claim.
If you have no prior requirement for a minimum level of cover, you should weigh up the costs and see how much you may have to pay out if you end up making a mistake and losing your client’s money.
Even if you work from home and you’re self-employed, you should get professional indemnity insurance to cover any costs you could face if a client makes a claim against you.
Professional indemnity insurance policies can start at under £10 a month for a £50,000 limit. The higher you set your limit, and the higher risk your line of work is, then the more expensive your premiums will be. With professional indemnity insurance, professions such as financial advisors are seen as high risk, as you have the potential to lose your clients a lot of money through misguided advice or information.
How do I get the best professional indemnity insurance?
The easiest way to get the best professional indemnity insurance is to compare insurance policies. Use our insurance comparison tool to help you with this. Just tell us a few details about the nature of your business, such as what it is you do, how many employees you have and for how long you’ve been trading, and we will provide you with a list of insurance quotes. Have a read through them, and check the terms and conditions carefully, looking out for any exemptions that could mean your business is unable to claim. Look carefully at the limit and excesses too – make sure you choose a policy that you can afford to make claims on.