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What our Nerds say about professional indemnity insurance

If you provide professional knowledge, services or advice, you may want to consider professional indemnity (PI) insurance.

That’s because if a client makes a successful professional negligence claim against your business after mistakes, poor service or wrong advice, PI cover could pay compensation costs and legal fees.

Kristina Fox Writer at NerdWallet

What is professional indemnity insurance?

Professional indemnity insurance is a type of protection that helps cover the cost of claims made against you and your business for negligent advice or services. If a client claims that you caused them financial or reputational loss, PI insurance can help cover any compensation and legal costs you're asked to pay.

You can buy PI as a standalone policy or add it to a more comprehensive business insurance package.

Why is professional indemnity insurance important?

If you don’t have professional indemnity insurance and a client or other third party makes a successful claim against you, your business would have to foot the bill. This could amount to thousands of pounds in legal costs and settlement fees.

PI insurance can also cover legal costs to defend your business and protect its reputation if you think a claim isn’t justified.

Do I need professional indemnity insurance?

It depends on your profession. Some lines of work require professional indemnity insurance, and may state a minimum level. These include:

Even so, if you offer expert advice or information as part of your work, professional indemnity insurance can be worth considering. This also applies if you provide these services for free, as claims can still be made against you or your business.

What happens if I can’t get professional indemnity insurance?

Some professions don’t let you trade without the right level of PI insurance. Without the required cover, you could lose your membership or face disciplinary action.

If you are finding it hard to get PI insurance, or have been refused a renewal, contact your professional body for advice. It may be able to help you get another policy or cover you until you are insured.

You don’t need professional indemnity insurance by law. The only legal requirement for businesses in the UK when it comes to insurance is employers’ liability insurance. You must have this if you employ anyone outside your immediate family who is based in the UK and for any employees if it’s for a limited company.

If you use a vehicle for business purposes, you need business car insurance or commercial vehicle insurance to reflect the extra risks that come with that.

» MORE: Do I need business insurance?

How much professional indemnity insurance do I need?

The amount of cover you need depends on your individual circumstances and the nature of your business. PI insurance cover amounts range from £50,000 to £10 million, depending on the insurer.

Some clients insist on a certain level of cover before they will work with you, so be clear about how much that is.

If you’re a member of a professional body, you may need a certain level of professional indemnity insurance as part of the membership criteria. Contact your trade body to find out if this applies to you.

When should I get professional indemnity insurance?

If you think you need professional indemnity insurance for your business, you’ll want it as soon as you start trading. Professional indemnity insurance only covers events that happened while the policy is in place, so claims outside of that won’t be covered, although you may be able to get enhanced policies which cover historic claims. Nevertheless if your business has a need for PI insurance you should make sure this fully meets your requirements and is in place at appropriate times.

Try not to leave buying or renewing a policy until the last minute. This is so you have time to provide the correct information, find a different insurer, or ask for an extension of your cover if, for example, you are a solicitor. Start looking into it at least three months before your renewal date. Your insurer should get in touch at least 21 days before the renewal is due.

Does my business need any other types of insurance?

You may need to consider other types of business insurance, depending on the risks involved in your work and the industry you are in.

If you employ non-family members in the UK, or are a limited company, you’ll need employers’ liability insurance. This helps to protect you from the cost of claims if employees are harmed as a result of their work. You could face a fine if you aren’t properly covered.

Some professional bodies require their members to take out specific types of insurance. Or clients may request that you have a certain level of public liability insurance.

Otherwise, you may want to consider other types of protection, such as business contents insurance for damaged, lost or stolen stock or belongings. Or, for example, if you want to cover losses after security breaches such as phishing and ransomware risks, you might consider cyber insurance.

» MORE: Different types of business insurance explained

What does professional indemnity insurance cover?

Professional indemnity insurance can cover claims made against you or your business for negligent acts leading to a client losing money or damaging their reputation.

Here are some examples of negligent acts and costs PI might cover if a client makes a successful compensation claim:

  • Breach of confidence: If you forwarded an email containing confidential customer data to the wrong person and the customer suffered financial loss as a result.
  • Professional negligence: If you wrote a report for a client on how to grow their business but they lost money because of errors you made in your report.
  • Lost or damaged documents and data: If you’re an accountant and sensitive client documents are stolen from your office, PI insurance can cover the resulting costs including replacing or restoring documents or data if your hard-drive is corrupted.
  • Defamation: If you shared a joke or disparaging comment about a client with a member of staff via email, and the joke got back to the client, they could sue you for defamation.
  • Breach of copyright: If you’re a designer and accidentally use a copyrighted image without permission, professional indemnity insurance may cover being sued for breach of copyright.

Does professional indemnity insurance cover my employees?

Professional indemnity insurance can cover claims made against your business for work your employees have done. Tell your insurer how many employees you have, so they can be included on your policy.

Does a professional indemnity policy cover death?

PI policies aren’t about injury to people and won’t cover you for death or injury, unless the person was directly harmed by negligence or a breach of ‘duty of care’ while they worked.

For accidental injury in your workplace that didn’t involve professional negligence, you’d need public liability insurance.

» More: What is business liability insurance?

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

Professional indemnity insurance is cover for when clients claim financial loss or a damaged reputation due to mistakes or poor advice provided by your business. This might be anything from losing their data to mistakes on marketing materials you produce for them.

Public liability insurance is cover for when a client or member of the public is harmed, or their property is lost or damaged, due to your business. (Business contents insurance usually includes some public liability cover for belongings of employees and visitors.)

Both help cover legal fees and compensation costs resulting from a claim against your business.

» COMPARE: Public liability insurance

How do I claim on my professional indemnity insurance?

If you have to claim on your professional indemnity insurance, contact your insurer straight away. Insurers can reject your claim if you don’t give them enough notice, so let them know as soon as you can.

Have some details of the claim, any supporting evidence, and your policy number to hand. Don’t try to negotiate or settle the claim before speaking to your insurer.

If you think a claim could be made against you but you’ve not received notice of it yet, it’s still worth giving your insurer a heads-up. They may be able to help you settle the issue without going through the claims process, or can advise you on your next steps.

What is claims-made basis professional indemnity insurance?

Professional indemnity insurance operates on a ‘claims-made’ basis. This means that the policy must be in place when a claim is made – not just when the incident happened – to be covered for that incident.

However, two options can help deal with claims that might otherwise fall outside a policy term.

Run-off insurance policy

A run-off policy on your professional indemnity insurance cover stretches your cover beyond your cover end date. Here are a couple of circumstances where it might be useful:

  • If you retire or leave your business, a run-off policy can cover claims made against you after your professional indemnity insurance has ended. New claims can be made against you for up to six years after an event has happened, so your run-off policy should last this long.
  • If you change insurers, you may want to add run-off insurance to your previous policy to maintain cover for work completed under that policy. This is because your new policy will only cover you from the day it is taken out and won’t automatically cover previous work.

You may need to pay extra for a run-off policy, or the policy may already include cover for earlier incidents, so check the cover documents.

Retroactive policy start date

You could ask your new insurer to backdate your new policy, so it has a retroactive start date. This helps make sure you are covered for claims related to previous work under previous policies, where the cover was uninterrupted for the whole cover period.

Ask the insurer or a broker if you’re unsure about what could suit your business.

» MORE: Do I need a business insurance broker?

How much does professional indemnity insurance cost?

The price of professional indemnity insurance can start from under £5 a month, but what you pay depends on the insurer you choose, your business and the amount of cover you need. Prices can also vary across insurers. Common factors that affect the cost of PI insurance are:

  • your profession and the risks it faces
  • the level of cover you need
  • the number of employees and directors
  • your annual turnover
  • your claims history

To find out how much it could cost you, compare professional indemnity quotes from different insurers.

» MORE: How much is business insurance?

Is professional indemnity insurance tax deductible?

Professional indemnity insurance is tax deductible, as business insurance is an allowable expense. The cost of PI insurance can be deducted from your income when working out your taxable profits for self-assessment or your tax return. A financial adviser can help to explain how this works if you’re unsure.

How to choose professional indemnity insurance

It makes sense to compare professional indemnity insurers and policies. This can help you get the right fit for your business at the best price.

When comparing policies, consider:

  • how suited the cover is to your industry
  • the scope of the cover and whether it deals with all the risks posed to your business
  • how much insurance any regulatory body or professional association requires you to take out
  • Whether the insurer bundles professional indemnity with any other types of insurance
  • the excess you are expected to pay
  • whether the insurer has good reviews for settling claims

Professional Indemnity Insurance FAQs

Do I need professional indemnity insurance as a sole trader?

Whether you need PI insurance depends more on the type of work your business does than its structure. For example, if you are a self-employed consultant registered as a sole trader, you may consider it because of the nature of your work.

Similarly, self-employed accountants or architects need PI insurance because professional bodies of these industries require it. This would be the same for a sole trader or an architecture firm that’s a limited company.

» MORE: Should I register as a sole trader or a limited company?

Do I need professional indemnity insurance if I work from home?

Regardless of where you do your work, if you belong to a professional body or work in certain industries, you may need a certain level of PI insurance.

But even if it’s not required, if clients come to you for your knowledge, skills or professional opinion it’s a good idea to consider it.

» MORE: What insurance do you need for a home business?

Is professional indemnity insurance the same as directors' and officers' insurance?

No, there are differences. Professional indemnity insurance covers claims by clients who have had financial or reputational loss because of mistakes made by your business. Directors’ and officers’ (D&O) insurance covers claims against senior staff, such as directors and key managers, for wrongful acts such as breach of trust and duty and wrongful trading.

Claims can be made against senior management by investors, shareholders, regulators, creditors and other third parties. Also, legal fees for defending against, for example, criminal prosecution and director disqualification, may also be covered under D&O insurance.

» MORE: What is directors’ and officers’ insurance?

About the author

Kristina Fox
Kristina is a writer at NerdWallet. A recent graduate trading French for finance, she has experience creating content for student newspaper Cherwell and an edtech company. Read more
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