What is professional indemnity insurance?

If you’re a business, contractor, freelancer or sole trader who provides professional advice or services, you might need professional indemnity insurance. It could help protect you if you make a mistake at work and have to compensate a customer.

If you’re a business, contractor, freelancer or sole trader who provides professional advice or services, you might need professional indemnity insurance. It could help protect you if you make a mistake at work and have to compensate a customer.

Emily Kindness
From the Business team
5
minute read
Do you know someone who could benefit from this article?
Posted 30 APRIL 2021

How professional indemnity insurance can help

Everyone makes mistakes, even the most responsible professionals. Fortunately, professional indemnity insurance, also known as PI insurance, can help if an error in your work results in your client losing money and making a claim against you.

It can cover claims arising from a wide variety of situations, from accidentally revealing confidential information, to making a bookkeeping mistake.

A pay-out can cover your legal costs and your client’s legal costs, as well as any compensation you’re ordered to pay them.

Polices can also include cover for claims made after a business has ceased operating. This is called ‘run off insurance’ and it could come in handy, especially since claims can be made against a professional or business up to six years after an alleged incident happened.

Professional indemnity insurance – an example

A web designer is employed by a local business to create a new website. The web designer makes a mistake while building the website that means the website isn’t working during a peak selling period. The business loses money because its customers can’t shop online. The business makes a claim against the web designer for the cost of their lost trade. Because the web designer has PI cover, she/he is able to settle the claim with the help of their insurance pay-out, after first paying a contribution towards the claim – the excess.

Who needs professional indemnity insurance?

Not everyone needs professional indemnity insurance, but you may need it if:

  • You provide professional advice or services to clients – management consultancy or training, for example
  • You provide design services to clients, like engineering design or architectural design
  • You handle confidential or sensitive information on a client’s behalf

People likely to need PI insurance include:

  • Accountants
  • Business consultants
  • Architects
  • Solicitors
  • Engineers
  • Coaches and trainers
  • Designers
  • Financial advisors
  • Web agencies

Professional indemnity insurance isn’t a legal requirement. However, some people may need it to become members of their professional association or registration body. It’s also compulsory for certain professionals, like solicitors working in a private practice and financial advisors, as the regulators of their industries require them to have it. You might also be asked by a client to provide proof of your professional indemnity cover before they agree to work with you.

Be aware that while you might not be required to have PI insurance, if a claim is made against you and you don’t have it, it could cost you thousands.

What does professional indemnity insurance cover?

Professional indemnity insurance could cover you for:

  • Professional advice you’ve given if that turns out to be wrong and costs the client money
  • Designs or plans you’ve created for a client – for example, an architect designs a house which collapses
  • Confidentiality breaches – say you accidently forward an email containing confidential information to the wrong person
  • Slander or libel – you make false statements about a customer, either verbally or in writing
  • Property damage as a result of your work
  • Loss of information or goods – for example, a business has a computer malfunction and loses customer data, or a dry cleaning business loses a customer’s expensive clothes
  • Breach of copyright – for example, you use someone else’s designs without permission
  • Injury caused to a customer because of your negligence. For example, a personal trainer is supposed to ask clients whether they have any health conditions, but doesn’t. A client is then injured in the course of the training.

To find out exactly what’s covered by a particular PI policy, speak to your provider.

If you employ any staff outside of your direct family, you’ll need employers’ liability insurance to cover you for any claims made by them.

Professional liability insurance or professional indemnity insurance ­– what’s the difference?

Professional indemnity insurance is sometimes known as professional liability insurance. You might also hear it referred to as indemnity cover, or errors and omissions insurance (E&O insurance). In principle, these terms mean the same thing, and cover you for professional negligence and mistakes. But whatever the name of the product your insurance provider offers, you should always check your policy carefully to make sure the product gives you the cover you need.

What’s the difference between professional indemnity insurance and public liability insurance?

Public liability insurance could cover you if your company’s activities result in damage to someone’s property, or someone is injured or killed because of your business activities. For example, a customer might slip on a wet floor in your shop and hurt themselves.

Professional indemnity insurance covers you if a client makes a claim against you for professional mistakes or negligence.

How much professional indemnity insurance cover do I need?

Some professional bodies and business regulators specify a minimum level of cover their members need to have. Otherwise, it’s really a matter of how much risk you think there is to you.

Factors to consider include the size of your business and what you do. Most professional indemnity insurance providers cover from £50,000 to £5 million.

What’s the cost of professional indemnity insurance?

The cost of an indemnity cover premium depends on a few things, including:

  • The level of cover you need
  • The industry you work in and the risks associated with it
  • Your geographical location, or the location of your clients
  • The size of your business
  • Your claims history

To see what PI insurance might cost you, get a quick quote from us.

Looking for a quote?

Get a business insurance quote in minutes and you could start saving

Get a quote
Get a business insurance quote and you could start saving now Compare business insurance