Who needs professional indemnity insurance?

What is professional indemnity insurance?

It protects your business in the event a client suffers financial loss as a result of professional services you provided. This could include:

  • professional advice
  • design advice
  • consultancy work
  • specification advice
  • services where you had access to confidential data.

Professional indemnity is not the same as employers’ liability insurance or public liability insurance. You may need these as well, depending on the nature of your business.

Is it only for certain businesses?

If you provide the above services, you should have professional liability insurance. It doesn’t matter how your business is set up – whether it’s a limited company or you are operating as a self-employed contractor or consultant.

It also doesn’t matter how small your business is. The fact that you are a small business that takes on small projects may affect the amount of cover you need. However, it doesn’t mean you do not need cover.

Is it only for certain professions?

It’s a common misunderstanding that only certain high-profile professionals, such as lawyers or accountants, need professional liability insurance.

Builders, tradespeople and those in the construction industry also need to be covered if they provide any of the listed services above.

Does that mean professional indemnity insurance is a legal requirement?

For some professions, like solicitors and accountancy firms, it is a legal requirement. For others it is not legally required. However, it is strongly recommended for a few reasons.

Firstly, a claim against you may very quickly add up to hundreds of thousands of pounds. If you can’t pay, then your business and your assets will be at risk.

You may also find that having cover is a contractual term stated in your client contracts. Not having cover would mean being in breach of contract. If that happened, the client would be entitled to bring the contract to an end or possibly even sue you.

Finally, you may find that some trade bodies and associations will insist that you have appropriate insurance in order to be a member.

How much cover will I need?

That will depend on the sort of work you do, including the size and nature of your projects and your business.