When should businesses consider professional indemnity insurance?
Mistakes happen. And when they do, they can be costly. For many companies and contractors, professional indemnity insurance can put your business in a position to cover legal expenses and compensation, in the event that you are sued for negligence or oversights. Wondering if your business needs professional indemnity insurance? Discover what it covers, who needs it, and how much it’s likely to cost.
Do I need professional indemnity insurance?
Your decision about whether you need professional indemnity insurance will be based on a few factors:
- Does your professional industry body require you to be covered?
- What about your client contracts? Some specify professional indemnity as a requirement
- Even if you have answered ‘no’ to these questions, you may decide that you still need professional indemnity insurance. It can act as reassurance for potential clients who will rely on your business, and it can provide security for your business in case of a claim.
What is professional indemnity insurance?
Professional indemnity insurance is a type of cover designed to protect you if a client sues because of a mistake or negligence in the service they have received from you.
There are many scenarios in which this can happen. For example, if an architect makes a mistake which causes a building to need repair work, this will cost the client money, and they may sue the architect to cover the costs. The architect could then use their professional indemnity insurance to pay for a lawyer to represent them in court and pay damages for which they are legally liable, including claimant’s costs.
Who needs professional indemnity insurance?
Professional indemnity insurance is not a legal requirement. However, in many professions it is a condition of the industry’s regulatory body. For example, all healthcare professionals registered with the Care Quality Commission are required to have professional indemnity cover. You are likely to need indemnity insurance in order to practice if you belong to one of these sectors:
- Architects
- Accountancy
- Financial Advisor
- Surveying
- Engineering
- Healthcare
- Insurance Broking
Aside from these requirements, there are some professions where indemnity insurance is advisable. These tend to be roles where you run the risk of being sued for inadequate service or professional negligence. They include:
- IT Professionals
- HR Consultants
- Health and Safety Consultants
- Training Companies
- Any company or individual offering professional advice
- Any profession that involves handling confidential or sensitive information
What is covered by professional indemnity insurance?
There are many situations covered by professional indemnity insurance. For example, clients may sue if you have been negligent, if you have breached confidentiality or if you have broken copyright laws.
In these situations, your professional indemnity insurance should cover:
- Defence costs and legal fees – paying for a lawyer to represent you in court
- Compensation payments
It’s possible, depending on your activities to include extensions of cover such as:
- Collateral warranties in construction contracts
- Insurance covering additional persons or firms acting jointly with your business
- Liability for breach of warranty or authority
- Fidelity guarantee insurance
What is not covered by professional indemnity insurance?
While professional indemnity insurance is often essential to protect your finances, it’s worth bearing in mind that it does not cover the following:
- Costs associated with damage to your reputation. If you are being sued for negligence, you may lose business when people hear about the case. Professional indemnity insurance cannot cover any financial losses you may experience as a result of this.
- Public liability. This needs to be covered separately by public liability insurance.
- Employer liability. The cost of compensating employees injured or made ill at work should be covered separately under employer liability insurance.
How much does professional indemnity insurance cost?
The cost of professional indemnity insurance will vary depending on your business and sector, the extent of the cover and the risk associated with your work. This means it can be hard to quote an average figure.
Bearing all of this in mind, it’s possible, if you are a sole trader to purchase professional indemnity insurance for under £10 per month. Your own circumstances may mean you pay more.
When asking “Do I need professional indemnity insurance?” and considering the cost, it’s worth thinking about how much you could be liable to pay if a claim was brought against you. In many cases, this could stretch to hundreds of thousands of pounds.
Find out more and get a quote for professional indemnity insurance from Hallsdale.
Contact us
For more information on our professional indemnity insurance, please contact us at info@hallsdalecommercial.co.uk