Professional indemnity insurancecovers the cost of compensating clients for loss or damage resulting fromnegligentservices or advice provided by a business or an individual.
Do I need it?
If you offer your knowledge, skills or advice as part of your profession – either as a self-employed individual or for a company – you should consider taking out professional indemnity insurance.
Some professions are required to have professional indemnity insurance by their professional bodies or regulators– these include:
- Solicitors
- Accountants
- Architects
- Chartered surveyors
- Financial advisers
- Some healthcare professionals
Many other businesseschoose to take out professional indemnity insurance to protect themselves against claims – these include:
- advertising agencies
- consultancies
- design agencies
- public relations agencies
What it covers
Professional indemnity insurance protects you against claims for loss or damagemade by clients or third parties as a result of the impact ofnegligentservices you provided or negligentadvice you offered.
Compensation claims can be brought against you even if you provided a service or offered advice for free.
Conditions of your cover
Professional indemnity cover is usually offered on a claims-made basis. This means that your insurer will only cover you for claims that are brought against you during the term of your policy. If a claim is made against you after your policy has expired – even if the incident occurred while your policy was in place – you will not be covered for that claim.
For example, if an incident occurred in 2011 when you had professional indemnity cover, but the client brings a claim against you in 2012 – after your policy has expired – your insurer will not cover you for that claim.
If youcancel your professional indemnity insurance, for exampleif you are retiring or changing professions, you should consider purchasing a run-off policy. This covers you forany new claims that are brought against you after your professional indemnity insurance has expired.
New claims can be brought against you for up to six years after an allegednegligent act occured, so your run-offpolicy should cover you for this period.
If you are changinginsurer, a run-off policywill protect you against new claims for incidents that occurred when you were with your previous insurer. Alternatively, your new insurer may agree to cover you for claims relating to prior incidents.
Check if your new insurer covers you for claims relating to previous incidents, or ask about buying a run-off policy.
Buying professional indemnity insurance
You can buy professional indemnity insurance directly from an insurer or from a specialist broker through the British Insurance Brokers’ Association (BIBA).The amount of cover you need – and the price of your premium – will depend on your occupation.
Some professional bodies and regulators insist that their members are insured for a minimum amount. For example, solicitors are required to have professional indemnity cover of between £2 million and £3 million for any single claim made against them.
If you are not a member of a professional body you can ask your clients how much cover they expect you to have.
For more information on business insurance see the ABI guide to insurance for small businesses(pdf 466kB).
FAQs
You can usually choose between £50,000 and £5 million of professional indemnity insurance. Your regulator, professional body or client contracts may tell you the minimum amount you need. Think too about the scope of your projects and the potential compensation demand if something went wrong.
What is business professional indemnity insurance? ›
Professional Indemnity Insurance defined
Professional Indemnity insurance protects professionals against claims of negligence or breach of duty made by a client as a result of receiving professional advice or services from your business.
Why can't I get professional indemnity insurance? ›
Professional Indemnity Insurance can only be added to your policy if you purchase either Public Liability Insurance or Buildings and Contents Insurance. Professional Indemnity Insurance isn't available to professions that must have compulsory or regulated policy cover.
Why do professionals need professional indemnity insurance? ›
Even if your service was top-notch, but it somehow didn't meet your client's expectations, they can decide to sue. Professional indemnity insurance would cover the financial losses incurred during the course of a lawsuit against you or your company.
How much pi do I need? ›
As a guideline, think about the value of the contract to you, as well as the complexity of the work involved. Consider the turnover of the business and your pay as a proportion of that turnover. Calculating the right amount isn't an exact science, but getting it right is very important.
How to choose professional indemnity insurance? ›
How to choose the right professional indemnity cover?
- Coverage offered. This is the maximum amount that the insurance company will pay out in the event of a claim. ...
- Losses covered. It is important to understand the types of losses that are covered by the policy, as well as any exclusions or limitations.
- Cost of the policy.
So, how much does professional insurance cost? For most businesses professional indemnity insurance can cost anywhere from $100 to $300 a month. On average, a professional indemnity insurance policy costs $1500 per year. Minimum premiums start at $1,000 and rise depending on the before mentioned factors.
How much does indemnity insurance cost? ›
What is the cost of professional indemnity insurance? AXA customers pay prices from £6.17* a month or £75** a year for professional indemnity insurance. It's important to note that no two businesses have the same cost. There are several other factors that impact how much your premium will be.
What is another name for professional indemnity insurance? ›
Professional liability insurance (PLI), also called professional indemnity insurance (PII) but more commonly known as errors & omissions (E&O) in the US, is a form of liability insurance which helps protect professional advising, consulting, and service-providing individuals and companies from bearing the full cost of ...
What is an example of a professional indemnity claim? ›
Real-life professional indemnity claims examples
Architect sued by his client for the costs of rectifying an extension built from a flawed design. Insurer paid £22,500. Logistics company sued by a competitor for copyright infringement and intellectual property theft relating to their business model and their website.
Here are some reasons why you may need Professional Indemnity Insurance which might help make things clearer: You provide advice and consultancy - Clients can claim compensation if there's a mistake in the advice you've given. You provide an expert service - In case you make a mistake in designs, plans or calculations.
What insurance do I need as a self-employed consultant? ›
The amount of insurance you will need will depend on many factors including the type of clients you work with and the industry you are in. However, expect most clients to require a minimum of $1,000,000 in general liability insurance and another $1,000,000 in errors and omissions coverage.
What should the limit of indemnity be? ›
Choosing a limit of indemnity under a public liability policy? It is for each client to determine the level of cover they require under a public liability policy. For most businesses and undertakings, this is not a legally required insurance and consequently there is no set limit.
What is the standard professional indemnity policy? ›
Ans: Professional indemnity insurance provides coverage against claims for loss or damage that may arise from the consequences of one's negligent services or advice filed by clients or third parties. Even if you have provided services or advice free of charge, you can still be subject to compensation claims.
What is typical indemnity insurance? ›
Typical examples of indemnity insurance include professional insurance policies like malpractice insurance and errors and omissions insurance (E&O). These special insurance policies indemnify or reimburse professionals against claims made as they conduct their business.
What is the minimum level of professional indemnity insurance required by the FCA? ›
… … … 13.1. 10 R If the firm is an IDD insurance intermediary, whether or not it is also an exempt CAD firm, the appropriate minimum limits of indemnity per year are no lower than: (1) EUR 1,250,000 1,300,380 for a single claim against the firm; and (2) EUR 1,850,000 1,924,560 in the aggregate.
