Professional Indemnity Insurance Explained: What Small Business Owners Need To Know

Professional indemnity insurance provides cover for any business that provides advice or offers services to other businesses. Professional indemnity insurance will protect you if you are negligent or make a mistake which ends up causing a client’s business to suffer from financial loss. Professional indemnity insurance will also cover a business in case they infringe on any copyrights, trademarks or broadcasting rights. This insurance policy will also cover legal costs.

Which businesses need to take out professional indemnity insurance?

Many businesses are required to take out Professional indemnity insurance. In many countries, legal and medical professions are required to take out professional indemnity insurance, however this type of insurance could also apply to consultants, accounting or financial services and those in information technology.

What are the types of professional indemnity insurance?

There are three basic types of professional indemnity coverage. The first type will cover the business caused by negligence or error in their business. This policy only offers the most basic of insurance for any business. The next type of coverage available will protect the policy holder against any loss as a result from breach of duty. Finally, the other type of insurance cover available will protect an insurance being insured against any civil liability.

How much professional indemnity insurance cover does a business require?

The amount of cover that a business needs will depend on the size of the business and the type of services it provides. It is advisable to think about the value of the work you are doing for your clients and the potential financial impact on them should it go wrong.
There will often be times when a client will set a minimum amount of professional indemnity insurance cover they require a business to have before they will agree to work with them. For example, often UK governmental departments will require a business to have at least £5m in cover before they will agree to work with them.

In order to ensure that your business is not taken to court then it is a worthwhile to endeavour to draw up a contract with your clients before you begin work on a project. Make sure that you set out your responsibilities clearly in any document and keep copies of your agreements for future reference.

If you are a small business owner you may also be interested in the following articles:

Product Liability Insurance
Public Liability Insurance Cover
Employers Liability Insurance
Types of small business insurance