Professional indemnity insurance

While most other kinds of business insurance offer protection against physical risks, such as accidents on your premises or the theft of business equipment, there’s another type of insurance that specifically offers protection against claims of negligence and the financial loss that could result from it. This is known as professional indemnity insurance.

Professional indemnity insurance is designed to cover claims relating to professional mistakes, making it a core part of any business that provides advice in a professional capacity. Offering this kind of service always comes with risk, as things don’t always go to plan; professional indemnity insurance is therefore designed to protect your business if a client suffers financial losses as a result of the work you do for them or the advice you gave, as without it, you could be held personally liable to rectify the damage. 

It isn’t a legal requirement to have professional indemnity insurance, but if your business provides advice or professional services in any capacity, or if you deal with intellectual property or customer data, it’s highly recommended to take out suitable protection. It’s particularly appropriate for those in the financial industry, such as accountants or financial planners, but a lot of other business types could benefit from it too, from architects to web designers. In some cases, clients will insist that you have a certain level of cover before they’ll do business with you, and a lot of professional bodies and regulators require you to have a suitable policy in place as well.  

This kind of insurance covers any claim made by a third party in which the claimant feels they’ve suffered a financial loss as a direct result of your business activity, be it due to breach of contract, non-performance, professional negligence, data loss or simply bad advice. The policy will cover the compensation amount as well as any legal costs and associated expenses of dealing with the claim.

You’ll typically be able to source cover from £50,000 to as much as £5 million – clients and professional bodies will sometimes stipulate the amount of cover they expect you to have – and can often tailor the policy according to your business requirements, with various optional extras available from specialist providers. You may be able to include it as part of a wider business insurance package, too, though if you only need this type of cover – if you’re a sole trader or freelancer, for example – you can buy it individually as well.   

As with all types of insurance, the cost of a professional indemnity policy will vary depending on the type of business you run and the industry you operate in, not to mention the level of cover and amount of excess you choose. Higher-risk businesses will typically pay more for their premiums, but it’s still essential to compare the options thoroughly and seek quotes from several providers to ensure you’ve got the right financial safety net for your business.