Professional indemnity insurance

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Guide to professional indemnity insurance

Key points

  • Professional indemnity insurance protects your firm if it offers professional services and/or handles sensitive information from third parties
  • Insures against related compensation claims and legal costs
  • Read terms and conditions with care to ensure the nature of your firm's business is suitably protected

Professional indemnity cover is a form of business insurance that you may find invaluable if your firm offers professional advice and expertise to other businesses and/or individuals.

The product - also known as PI insurance, indemnity cover and professional liability insurance - could protect you in the event a client believes you've been negligent, costing them time and money in the process.

Why do I need indemnity insurance?

If you offer a professional service, give advice or handle data or intellectual property belonging to a client or business, you could benefit from taking out indemnity insurance.

If you're subject to a claim and you don't have PI cover you could find yourself paying out the sort of sums that could cripple any business.Filofax

What does professional indemnity insurance cover?

Professional indemnity insurance is designed to cover compensation to the claimant, which could include loss of earnings, future loss of earnings and the cost of repairing damage.

In addition, you should look for cover against any damages awarded to the claimant, plus legal costs.

These could be costs accrued to defend the claim and the claimant's legal costs in the event that you're found to be at fault.

Before taking out professional indemnity insurance, make sure that what you expect to be covered under the policy is actually included.

Check terms and conditions thoroughly and identify any areas where your company could be particularly vulnerable to a claim.

The types of risks that your business may be exposed to include, but are not limited to:Beginners' guide to business insurance

  • Loss of documents or data
  • Negligence
  • Intellectual property disputes
  • Dishonesty
  • Confidentiality breaches
  • Defamation
  • Copyright breaches
  • Loss of documents

Who needs PI insurance?

The types of professions who could need professional indemnity insurance include, but are not limited to:

Did you know...?

  • The level of cover you need depends on the risks involved with your business and can vary widely
  • Accountants
  • Financial advisers
  • Journalists
  • Architects
  • Business consultants
  • Creative, marketing or media professionals
  • IT professionals
  • Engineers

How much professional indemnity insurance will I need?

The level of cover you need depends on the risks involved with your business and can vary widely.

A minimum level of cover could be around £2m, but depending on your business you may need to think about a higher-end limit, perhaps around £10m.

Certain business types might be subject to certain requirements from clients.

For example, if you deal with large amounts of sensitive, high-risk data you may need to meet requirements set by external regulators.

How are professional indemnity premiums calculated?

When taking out professional liability insurance, your insurer could ask you a number of questions relating to your business and its practices.Public liability insurance

These are likely to include:

  • What type of business you are
  • The size of turnover
  • The number of employees
  • What kind of claims you've been subject to in the past

All these questions can determine the level of risk you present to an insurer.

If you've been subject to claims in the past, then your risk may be determined to be higher and your insurer may increase your premium, making cover more expensive.

Did you know...?

  • If you deal with large amounts of sensitive, high-risk data you may need to meet cover levels set by external regulators

Things to consider

Consider combining professional indemnity cover with other types of business insurance such as employers' liability and public liability cover - a combined policy could prove cheaper and more convenient than arranging each policy separately.

When you compare business insurance, remember that the right policy isn't necessarily the cheapest.

If you search with, you'll have the option to purchase online and/or speak to a specialist in a UK-based call centre if you need further guidance.

Don't be tempted to skimp on cover - if you find yourself accountable for negligence and don't have the necessary cover, you could lose your business.

By Emily Bater