Professional indemnity insurance is a type of business insurance. It’s for businesses which sell professional advice, knowledge or skills to customers.
It covers claims made against your business by clients who’ve lost money because of your information or advice you had provided. You might’ve seen it referred to as PI insurance.
How does professional indemnity insurance work?
Professional indemnity insurance protects you against claims made by clients, as a result of your work. A professional indemnity policy could save you thousands of pounds in legal fees.
For certain professions, it’s a legal requirement. You may also need it if you’re part of a trade body or subject to industry regulation.
You can take out PI insurance on its own, or combine it with public and employers' liability insurance to make it simpler and more cost effective. This covers you if your staff are injured, ill or die at work.
What does professional indemnity insurance cover?
Professional indemnity insurance covers legal fees and compensation costs, which could be very expensive if a client sued you.
Professional indemnity insurance also gives you ‘run-off cover’. This means that you’ll still be covered even after your business stops trading. That’s a very important benefit for retired business owners, who might find it hard to fund a claim against them.
When you take out professional indemnity insurance, you can set your limit of indemnity. This is how much the policy would pay out for a claim. Different insurers offer different limits.
When you get an indemnity insurance quote, it’s important to compare as many companies as possible to find the best policy. If you don’t know what cover you need, speak to a broker for quotes and advice.
Professional indemnity claims examples
Examples of claims that your professional indemnity insurance would help with include:
Professional negligence, eg. if a conveyancing solicitor doesn’t tell their client about a public right of way in their garden
Lost documents or data, eg. if an IT contractor loses confidential information
Accidental breach of copyright or confidentiality, eg. if a designer uses a font without permission
Defamation and libel (damage to their reputation), eg. if a journalist writes something false and defamatory
Loss of goods or money (for which you are responsible), eg. if a dry cleaner loses somebody’s wedding dress.
When is professional indemnity insurance required?
A professional indemnity policy is for businesses that sell knowledge, skills or advice to customers. It offers you protection if a client makes a claim in connection with your work.
These industries are required by law to have professional indemnity insurance:
You should consider taking out PI insurance if you work in PR, advertising, consultancy, graphic design, or journalism.
Professional indemnity cover is ideal for people who are self-employed, or small businesses. This is because it can save you from having to pay compensation from your own pocket.
How to choose the best professional indemnity insurance for your business
You should compare quotes to get the best price on your professional indemnity cover.There are several types of professional indemnity insurance that you can choose from.
Any one claim policy
An ‘any one claim’ professional indemnity policy means you’re covered for the full limit of indemnity for every single claim made against you. The limit of indemnity means how much the policy would pay out. This means that if your limit was £50,000 and two claims were made of £49,000 each, your insurer would pay out twice.
An aggregate professional indemnity policy lets you claim the full limit across the term of the policy. You cannot claim the full limit for each individual claim. This means that if your limit was £50,000 and two claims were made of £30,000 each, the insurer would only pay out £50,000. The remaining £10,000 would need to be covered by other means.
Claims made policy
A claims made policy only covers for claims made during the period of insurance. So if you service your client during the period of insurance, and their claim is reported during the same period, you’ll be covered. But if you don’t renew your policy and your cover ends, you won’t be covered. This will be the case even if you gave the service during the period of cover.
How much professional indemnity insurance do you need?
The level of cover you’ll need depends on the size of your business and the type of work you’re doing. It’s not an exact science.
A large business needs a lot more professional indemnity cover than a small business.
Your broker can help you work out how much cover’s appropriate for your business. You can usually choose a claims limit between £50,000 and £5 million.
You should also check if your trade body or industry’s regulator specifies a minimum limit that you should have.
It’s always better to have too much cover than too little and really you should take out the maximum you can afford.
Professional indemnity insurance for sole traders
When deciding what level of cover you need, think how you’d cope financially if you were facing a legal battle. You should think about the worst-case scenario before you pick your professional indemnity insurance.
Small business professional indemnity insurance
You should try to get enough cover to fix the worst possible mistake your business could make. Think about what kind of work you’re doing and what could go wrong. Consider what kind of companies you work with and how much they’re paying you. And look at whether your work is part of a bigger project, and what you could potentially be sued for.
How much does professional indemnity insurance cost?
When it comes to professional indemnity insurance, cost is based on several factors. These include what kind of business you’ve got, your annual turnover and what limit of indemnity you need.
Compare quotes to get the best price on your professional indemnity cover.
How to claim against professional indemnity insurance
If you need to make a professional indemnity claim, here are some easy steps you can follow.
Contact your insurer to explain the situation. If something’s happening that might lead to a claim, ask your broker whether you should speak to your insurer.
If you do need to claim and have let your insurer know, they’ll usually want lots of information about the issue. So you’ll probably need to gather some documents and liaise with people in your office to get information.
You’ll need to attend meetings and help draft responses to the person or business claiming.