What is professional indemnity insurance?
Professional indemnity insurance is one of the main types of business insurance. But who is it for and what does it cover? Read on to find out.
What does professional indemnity insurance cover?
Professional indemnity insurance covers your business if you make a mistake or give advice that costs your client money or harms their reputation. If they take you to court for financial or reputational damage, professional indemnity can cover the legal fees and compensation costs.
Who needs professional indemnity insurance?
If you provide a creative service, or have customers that rely on your expertise, this insurance is for you. Some key professions that benefit from professional indemnity insurance include architects, accountants, designers, software developers, marketers, IT consultants and estate agents, to name but a few.
As well as poor advice and creative disputes, professional indemnity insurance will cover you for copyright infringement and mishandling data. If you accidentally send an email containing confidential information to the wrong person, and this results in a civil suit, professional indemnity will cover the resultant costs.
Do I need professional indemnity insurance if I work alone?
When you're a freelancer or contractor, you can't rely on an in-house legal team to resolve issues with clients. Therefore, when resources are tight, and you're solely responsible for keeping your business running, it's especially important to safeguard your finances.
Even if you are an expert in your field, things can still go wrong. Although you may not believe your work has been substandard, a client might still decide to sue. Even a spurious court case can be expensive.
Is professional indemnity insurance mandatory?
Professional indemnity insurance isn't a legal requirement for all businesses, but some professional bodies and regulators will insist on a minimal level of cover.
Those working in accounting, architecture, town planning, surveying and law will often be required to take out insurance. Plus, some clients will only agree to do business with you if you're covered.
Do I need professional indemnity insurance if I already have public liability cover?
Public liability and professional indemnity insurance cover you for different circumstances.
Professional indemnity insurance covers you if your client believes your work, designs, ideas or advice have led them to lose money or business. For example, if you're designing the poster for a movie and accidentally publish an inflammatory typo, or if you advise a client to invest in a business that then goes bust.
Public liability covers you for claims relating to injury, illness or property damage. For example, if you're an estate agent and you accidentally knock over an expensive vase when showing people around someone's house, or if you're decorating a venue and you accidentally drop a heavy piece of furniture on someone's foot.
For peace of mind, many business owners choose to purchase both public liability and professional indemnity insurance. Every business is unique, so you'll need to assess which risks you are likely to face.
What should you consider before taking out professional indemnity insurance?
- Think about the risks associated with your line of work and the potential costs if something were to go wrong. Some clients will state the value of cover they look for as a condition of doing business, which will give you some guidance. Make sure your policy limit reflects this.
- Some professional indemnity policies include elements of cyber cover. If this is something that you think can benefit your business, check what's offered before purchasing.
- Be careful about the period that you're covered for. You can choose insurance that covers you for actions taken during the policy, but you can also get retroactive cover for your past liabilities. In this case you'll be covered for mistakes you've made in the past, which affect your client in the future.
How much professional indemnity insurance do I need?
It's worth talking to businesses of a similar size, as well as colleagues and clients, to see what level of cover they have.
You need to think about the likely financial impact on a client's business should something go wrong. What sort of clients are you working with? Could poor advice cost them a thousand pounds or one million?
At Direct Line, we offer £100,000 to £5 million worth of cover depending on your trade and your requirements.
What is professional liability insurance?
Professional liability insurance is another name for professional indemnity insurance. It covers you if you make an error or give poor advice, which results in your client losing business.