5 reasons you need professional indemnity insurance
Professional indemnity (PI) insurance applies to more industries than you might realise, and with the costs of legal action potentially running into the millions, it can offer invaluable protection to businesses both large and small.
Do you need it? The answer is ‘yes’ if…
…you give advice
From fitness instructors, IT consultants and business gurus; to architects, design agencies and agricultural advisers; to accountants, financial planners and more besides. If your business provides professional advice to clients, then you need PI.
It will cover legal costs and expenses incurred in your defence – plus any damages or costs if they are awarded – in the event of legal action being brought against your business for advice given or services provided.
If you’re wondering what the difference is between professional indemnity and public liability insurance, generally the former deals with ‘intangibles’, such as financial loss, while the latter deals with ‘tangibles’, such as physical injuries to customers and damage to third-party property.
Read more: 7 things you need to know about public liability insurance
…your industry requires you to have it
For some practitioners – such as solicitors, chartered surveyors, insurance brokers, financial advisers, architects, accountants and healthcare professionals – PI cover is made compulsory by industry regulators and/or professional bodies.
For some practitioners … PI cover is made compulsory by industry regulators and/or professional bodies.
If you’re providing an advice-giving service, then you’ll likely need PI cover anyway, but it’s particularly important to check the rules, regulations and industry association membership requirements that apply to your business before beginning to trade. PI may feature among them.
…a contract requires you to have it
Some clients – particularly those entering into high-value contracts with you – will make PI a condition of the business deal, just in case your business happens to make a mistake. You may decide to cross this bridge if and when you come to it, but having professional indemnity cover in place from the get-go could save time – and even be a factor in your favour – when a potential client is considering signing on the dotted line.
Read more: Business owners’ guide to Warranty and Indemnity Insurance
…you have unlimited liability
If you’re a partner or a sole proprietor of a business, then PI cover is essential in protecting your personal investments – as well as your business. If a client was to bring legal action against your business for a service it deemed inadequate, and you didn’t have PI in place, then you would find yourself personally responsible for legal fees and any compensation if your company couldn’t pay them. This could mean having to sell off your own assets, such as property or car, in order to clear the business’ debt – a financial situation that might subsequently put the future of your business in jeopardy.
…you’re retiring from an advice-giving business
When you’ve ceased trading, legal action could potentially still be brought against your business for advice given to clients in the past. ‘Run-off cover’ is available to limited companies or partnerships, including LLPs or sole traders, and provides protection in the event of future claims. It covers the former business owner or partners as well as directors and staff. But even if you’ve passed the reins of the company over to someone else, who will be maintaining its PI cover, you may still need to take out your own run-off policy. The new business owner could require it as a condition of the sale, or perhaps you would prefer to manage your own liabilities.
To find out more about professional indemnity insurance and its benefits to your business, visit our PI page, or give us a call on 01603 218000.