Many industries provide services and advice to clients that require a company to make judgements. Regardless of skill and experience, there is always the possibility that someone will make a mistake resulting in losses, financial or otherwise. 

While general liability insurance covers direct harm to a client, it does not provide protection from more complex damages from misjudgement or errors. If a client suffers losses as a result of your company’s negligence, you may be held liable. Professional indemnity insurance covers legal defense costs and, potentially, the payout if you are found liable.

The cost of professional indemnity insurance can vary considerably between industries. To make an informed decision, you must evaluate the risks of your industry and your particular business and find the policy to best cover your concerns and needs.

We Cover in This Guide

• What is the cost of professional indemnity insurance?
• What is professional indemnity insurance?
• Who needs professional indemnity insurance?
• What does professional indemnity insurance cover?
• Benefits and risks
• Tips for buying
• FAQ
• Summary

How Much Does Professional Indemnity Insurance Cost?

The cost of professional indemnity insurance varies considerably depending on the risks of your business. For most service industries, the potential liabilities are low, so coverage is basic and can start at $20 per month. For industries, like the medical and legal fields, where risks and potential liabilities are extremely high, a specialized indemnity is necessary and is much more costly: several hundred dollars a month or higher.

What Is Professional Indemnity Insurance?

Professional indemnity insurance is a policy that covers your business for potential liabilities if your work, service, or advice causes a client to suffer a loss, financial or otherwise. With such coverage, you are protected from the cost of fighting legal claims and the potential for financial ruin if you are deemed responsible.

Who Needs Professional Indemnity Insurance?

Any business that provides professional services, work, or advice may need professional indemnity insurance. Professional service industries include:

• Accounting firms
• Surveying consultants
• Legal services
• Financial services
• Architectural firms
• IT consultants
• Medical practitioners
• Investment firms
• Engineering firms
• Management companies

In addition to providing security, and preventing financial hardship or even bankruptcy, your company may not be permitted to operate without an indemnity policy. Some professional service organizations consider professional indemnity insurance a mark of an ethical company and require proof of ownership for membership.

What Does Professional Indemnity Insurance Cover?

If a client alleges that improper work, services, or advice caused them harm, professional indemnity insurance will cover the legal defense costs and the amount owed to the client. The scenarios such policies cover are numerous, and include the following:

• Professional negligence: Giving incorrect advice or making a mistake
• Defamation or libel: Saying or supporting defamatory or libelous statements about a client
• Breach of confidence or confidentiality: Sharing sensitive information without permission
• Breach of copyright: Infringing on copyrights, trademarks, or intellectual property
• Lost or damaged documents: Losing or damaging documents in your care
• Lost goods or money: Losing goods or money in your care
• Employee cover: An employee committing a malicious act

Specialized insurance policies for high risk industries will have more details about the specific scenarios that are covered.  

Benefits and Risks

Professional indemnity insurance offers various benefits to cover risks, including:

• Protection against lawsuits: In service industries, your clients use your work and advice to make many important decisions. If you make a mistake, the ramifications can be far-reaching and extremely costly. Professional indemnity insurance provides coverage to defend a lawsuit and cover any damages.
• Peace of mind: Professional indemnity insurance coverage allows your employees and clients to focus on their immediate matters because they know that the company is protected from the worst case scenario.
• Service organization membership: Many potential clients only consider businesses who belong to certain service organizations, believing that membership ensures that a business is well-regarded within the wider community. Often, such organizations require proof of a professional indemnity insurance policy for membership.

Tips for Buying

When considering the cost of professional indemnity insurance, keep the following in mind when making your decision:

• Identify your risks: Each industry may require very different types of professional indemnity insurance. If your work is low risk, a simple, low-cost policy may suffice; higher risk work may require a costly, specialized policy.
• Work with an independent agent: An independent insurance agent will help direct you toward providers with the best rates and those that have the most experience with coverage in your particular industry. 
• Shop around: Policy costs vary considerably between insurance providers. Make sure to compare several quotes to find the best rates and coverage for your needs.

FAQ

How do I know if I need professional indemnity insurance?
If in your work you provide service or advice, you might need professional indemnity insurance. Even those companies with the most experience, and that have great relationships with clients, occasionally make costly errors that can lead to a lawsuit.

Is professional indemnity insurance mandatory?
In certain cases yes; in others, you are unlikely to get work without it. The regulatory bodies of business sectors like accounting, engineering, and surveying require professional indemnity insurance. As for contract workers, clients typically require proof of professional indemnity insurance before awarding the contract.

What limit of professional indemnity do I need?
Your professional indemnity insurance limit depends on the circumstances of your needs. If you are just covering yourself for a specific contract, the client will likely require a certain amount. If you are insuring your entire company, you should evaluate the potential risks, determine the full cost of the worst case scenario, and purchase a policy with a limit that will cover it.

Summary

Professional indemnity insurance protects your business from the potential of financial ruin or even bankruptcy resulting from an error in your work, services, or advice.

By understanding the cost of professional indemnity insurance and determining the particular needs of your business and your industry in general, you can know that your policy covers all your potential risks and feel secure knowing that your business is protected.