What is Professional Indemnity Insurance?

Professional Indemnity insurance is a form of business insurance designed to protect you and your profession against financial and legal claims from clients who have suffered a financial loss due to potential professional negligence and poor advice. It differs from Public and Employers Liability cover in that it is designed to protect you, the policyholder, rather than the claimant.

Cover could also include protection against intellectual property infringement, claims of dishonesty or defamation, and those relating to loss or inappropriate use of documents or data.

Essentially, in your professional capacity if you offer advice or a service you may be at risk of a Professional Indemnity claim.

If you’re unfamiliar with the two different limits or types of Professional Indemnity insurance, it’s worth understanding which type of policy would benefit your policy the most. The limit of indemnity attached to your policy is usually one of two options:


Any One Claim

An ‘Any one claim’ policy means that the limit of cover you decide for your PI insurance policy will apply on every occasion that a claim is made against you.

For example, if you have a £1,000,000 limit on your policy then every time you need to make a claim, it can be up to the value of £1,000,000 despite whether several claims occur relating to the same error or negligent act; with this policy, your insurer will consider them separately.

Aggregate Cover

Essentially, ‘Aggregate cover’ means that the limit of your policy is the total limit for all claims despite how many are made against you.

For example, once again if you have a £1,000,000 limit of indemnity on your policy then this is the most that can be paid out in total across all claims made within the life of your active policy. It’s worth considering this as if you unfortunately had several claims in a year, they will begin to add up. I.e. if you faced a claim for £200,000 you would therefore only have £800,000 available for the rest of the year.

Many business owners prefer ‘Any one claim’ policies as they are considered to provide a better level of protection for professionals; however they are therefore understandably more expensive.

It is also worth noting at this stage that even if you cease trading, you may still be liable for advice or acts of negligence discovered at a later date. This is why run off or retroactive cover is so important.

Run off cover

Simply put, “run off” cover protects your company if you cease trading. It isn’t one of the cheeriest things to consider but nonetheless it is still practical as you and your business would still be held liable for any successful claims made even after your business has closed.

This type of cover should be considered important for professionals and business owners who may be freelancing temporarily or nearing retirement.

Claims made

It’s worth remembering that professional indemnity insurance is just one of few business insurance policies which can be underwritten on a ‘claims-made basis’.

This means that the policy will only offer you cover for claims made and reported within the annual set period of insurance. I.e.  If a negligent act or errors were to occur during your period of cover and you inform your insurance company, you could expect to be covered.

However, if you choose to cancel or allow your policy to lapse, the cover would promptly end meaning if a claim was received after the end of the policy but the incident occurred during the policy period you were insured, you would no longer have protection as your policy was cancelled, allowed to end.

This is an important consideration for professionals including contractors and freelancers who move from job to job and project to project. In this instance you may feel it necessary to only purchase a short-term professional indemnity insurance, just to cover your contract. However, as described, if were to be made after this contract has ended and you have cancelled your policy, you will not be covered.

Retroactive Cover

To break this down, this is a type of cover that if applied allows you to backdate your insurance policy – subject to exclusions.

When taking out a new policy, many insurers will give you the option to choose a retroactive date. This protects you for work completed during the period from said date.

For example, if you choose to take out 12 months’ retroactive cover, you will be protected against claims for work completed within those last 12 months. As long as the policy is renewed your retroactive date will remain active.

Do I need Professional Indemnity Insurance?

Firstly, it is worth noting that professional indemnity insurance is not compulsory for all professions within the United Kingdom. 


What does Professional Indemnity Insurance cover?

Fortunately, Professional Indemnity insurance covers an array of potential risks. Below, we go into a bit more detail of some of the more common legal issues that some professionals may encounter:


How much does Professional Indemnity Insurance cost?

As with most insurance, the cost of a professional indemnity policy will depend on certain factors. For example, exposure to certain risks associated with your profession and the size of your business.


What are the legal and financial risks of not having Professional Indemnity Insurance?

Simply put, if you make the decision to operate without the adequate professional indemnity insurance you are leaving your business open to financial claims and legal proceedings from your clients and other potential third parties.


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