Professional <br/>Indemnity <br/>Insurance (2024)

FAQs

Professional <br/>Indemnity <br/>Insurance? ›

Professional indemnity insurance is a type of insurance that protects a business owner or professional if a client alleges that the business behaved negligently or failed to perform work adequately.

Professional indemnity insurance protects you against claims for loss or damage made by clients or third parties as a result of the impact of negligent services you provided or negligent advice you offered.

Indemnity can be defined as a contractual obligation to compensate an individual or business for damages or losses they experience. Put another way, an insurance company indemnifies a policyholder by restoring them to their prior financial status, or making them “whole” again, in the event of a covered event or peril.

PI insurance is important for businesses which provide professional advice. This includes but is not limited to accountants; psychologists; architects; consultants and many more. For some professions, it is even mandatory, with a central regulating body setting the requirements and limits.

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.

The term indemnity insurance refers to an insurance policy that compensates an insured party for certain unexpected damages or losses up to a certain limit—usually the amount of the loss itself. Insurance companies provide coverage in exchange for premiums paid by the insured parties.

What Does Indemnity Insurance Not Cover? Claims covered by your general liability policy, such as third-person bodily injury or property damage, are not covered by indemnity insurance. Always review your policy for your specific coverage and exclusions.

Professional indemnity cover is a type of business insurance for companies and consultants which provide professional services to clients. It can help cover the cost of compensation and legal fees if you're accused of providing negligent services or poor advice that leads to losses or damage for your client.

What this means is that if you don't have professional indemnity insurance, the number of projects that you're able to work on is a lot more limited. If you're required to have professional indemnity insurance due to a contractual requirement, the contract will usually specify the minimum indemnity limit.

This type of insurance responds to claims of negligence, oversights, malpractice, or errors your clients allege you committed while providing your services. If a client, or a former client, thinks that your bad advice caused them financial or reputational damage, they may choose to sue you.

How much pi should I have? ›

How much professional indemnity cover you need will depend on the work you do, and the level of risk involved. Some factors to take into consideration include: Size of your business, usually including annual turnover. As your business grows you can extend the level of cover needed.

The 'excess' is the first portion of a professional indemnity loss or claim that is borne by the insured. An excess can be either voluntary to obtain a lower premium or imposed due to underwriting reasons.

Professional Indemnity Insurance provides cover for legal costs and expenses incurred in your defence, as well as any damages or costs that may be awarded, if you're alleged to have provided inadequate advice, services or designs that cause your client to lose money.

Professional indemnity insurance provides cover for a range of scenarios that could cause financial loss or damage to your client, such as loss of documents, breach of confidentiality, making defamatory statements, breaching copyright, or incorrect advice.

While professional indemnity insurance is essentially a legal liability cover, it also covers other related expenses that the insured may incur in the course of their defense. These could also include damages or losses awarded to the third party.

This type of policy is known as a 'claims occurring' policy. PI policies are different. They're written on a 'claims made' basis. This means payment will be made for a claim made during the cover term, regardless of when the incident – or alleged incident – took place.