Professional Indemnity Insurance: Who Needs It and What Does It Cover?

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Professional indemnity insurance is one of many types of business insurance. Most companies should investigate getting it, as a part of establishing their enterprise. Other types of business insurance include public liability insurance, employers’ liability insurance, and product liability insurance. However, professional indemnity insurance covers a variety of fields. It also offers protection that many businesses could benefit from.

If you’re interested in learning more about professional indemnity insurance, you’ve clicked on the right article. In this article, we’ll introduce you to the product and let you know who should consider it. If you’re looking for specific numbers, we’ll talk about how much it costs in a few minutes. We’ll also discuss what it covers (and what it doesn’t). By the end, you’ll have a better idea why professional indemnity insurance shows up on policies of businesses all over.

What is Professional Indemnity Insurance?

Like any other type of insurance, professional indemnity insurance protects you in certain instances. Also known as Errors and Omissions insurance (E&O) or malpractice insurance, it “protects businesses and individuals who provide professional services to clients from the legal costs and claims for damages that may arise from an act, omission or breach of duty in the course of their business.

In layman’s terms, professional indemnity insurance comes into play when a customer takes legal action against a company or individual for what they believe are damages done. Those damages can include a variety of charges, from providing inaccurate financial advice to providing a wrong prescription to a patient. Individual cases will have their own intricacies.

The unique thing about this insurance is that “insurance companies write a professional liability insurance policy on a claims-made basis with a retroactive date and extended reporting period.” As a claims-made policy, professional indemnity insurance should be kept active as much as possible. Retroactive dates are key, since past customers have a right to make a claim just as much as future clients do. The extended reporting period typically covers a company 30-to-60 days after the policy ends. This ensures coverage in the same way a retroactive date does.

Who Should Look Into Professional Indemnity Insurance?

For a better idea of what professional indemnity insurance protects against, here are a few examples of fields that could benefit from this type of policy.

  • Accounting
  • Legal
  • Financial
  • Architectural
  • Medical
  • IT
  • Investment
  • Management
  • Real estate
  • Counselors

Membership in certain professional service organizations (or certain contracts) may actually require you to carry this type of coverage. Both large and small businesses can benefit. Another way to know if your business might be eligible is to consider things from the other side of the table. What services do you offer that a customer could potentially bring up in a case against you? Thinking about the other perspective may be hard, but it might help open your eyes about how to better protect your business.

Even if your profession doesn’t fall into any of these categories, you may want to contact a local insurance agent who’s knowledgeable about professional indemnity insurance. They should be able to provide more information related to your specific business. It could make a serious difference when it comes to your bottom line.

How Much Does Professional Indemnity Insurance Cost?

Coming up with an exact cost for your business isn’t something we can do in this article. The rates are typically determined based on your specific business type or industry. Some industries may have higher insurance premiums due to increased risks. One generalization we can make, however, is that a lower deductible typically translates to a higher premium. This is the case with many insurance policies.

There are a variety of factors that can impact the cost of this insurance. Some examples are coverage limits, type of business, location, business size, years in business, and claims history. Most businesses can expect to pay “around $20 per month to several hundred dollars a month.” Some small business owners report spending somewhere between $45 and $500 per year on this type of coverage.

What Does It Cover?

Besides the price, coverage is another important factor when it comes to this type of insurance. The list below details some of the coverages you can expect from a professional indemnity insurance policy.

  • “Damages and claimant costs awarded against you”
  • Legal fees, including investigation, court, and public relation costs
  • Intellectual property infringement
  • Negligence
  • Inaccurate advice
  • Oversights
  • Defamation
  • Missed deadlines
  • Undelivered services
  • Fines
  • Technological data breach, including notifying customers, credit monitoring, investigations, public relations, associated costs, and ransom demands

Before you sign any policy, make sure you look over what is and isn’t covered. The difference could mean thousands of dollars in legal fees, should you ever find yourself sued.

What Does It Not Cover?

Speaking of what is covered, we also need to take a moment to go over what isn’t covered. As with most types of insurances, there are exceptions that are outside of the scope of this coverage. Here are some things typically not covered by professional indemnity insurance.

  • Fraud
  • Bodily injury/property damage
  • Intentional damage
  • Data breach
  • Work-related injuries/illness
  • Employee theft
  • Discrimination lawsuits
  • Business vehicles

Professional indemnity insurance also “doesn’t pay for lawsuits you initiate.” In that way, you should consider it more of a defensive type of insurance policy. At the same time, some of the instances listed above may be covered in other types of business insurance policies.

To figure out what you may be missing out on, you should ask an insurance agent specifically about what a potential policy doesn’t cover. If anything stands out to you, bring it up as a talking point with a competing agency. Some policies are negotiable, after all. You never know what you might miss out on by simply not asking.

What to Look for in a Professional Indemnity Insurance Plan

As you look through insurance policies (and compare rates and coverages), you’ll want to make sure you read the fine print. That might go without saying, but it’s especially important in the case of professional indemnity insurance. That’s because any loophole could lead to your business filing bankruptcy because of a legal claim — or being protected and simply having to weather the storm.

Like insurance policies that cover your car or house, professional indemnity insurance policies can have confusing language or even huge differences in coverage. Make sure you talk over any policy that you’re considering with a representative from that company. Ask any questions you may think of and make notes along the way. You could even consult other business owners to see what they recommend. While they may not share particulars, you could at least get an idea of what coverage they may have used in the past.

Coverage When and Where You Need it

Professional indemnity insurance can seem like something you don’t really need. However, any business that forgoes it is at risk of losing it all. All it takes is a past, present, or future customer who isn’t satisfied with the service they received. Don’t leave your business’s future to fate. Instead, contemplate carrying professional indemnity insurance to have peace of mind. That will leave you plenty of time to focus on what’s most important.

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Rebecca Henderson

Rebecca Henderson

Rebecca Henderson has a Master's in German and a Bachelor's in Creative Writing. She alternates her time between writing and working on a variety of motorized projects. Most recently, she and her boyfriend have been building a custom drift trike. Rebecca believes that language, love, and a life worth living are only the first ingredients to happiness.

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