Guide to choosing the right indemnity limits for your business

An indemnity limit is the maximum amount of money your insurance policy will pay out (not including costs and fees). It’s sometimes referred to as the ‘limit of indemnity’.

31.12.25

By Alan Boswell Group

Having the right indemnity limit for your business can help if you’re faced with a serious claim. If it’s too low and your business is underinsured, the impact can be financially devastating, making it harder to get your business back on its feet.

We explain how to choose the right level of indemnity for your business’s risks, as well as look at the risks of underinsurance.

What happens if the limit of indemnity isn’t enough?

If the indemnity limit is not enough to cover the cost of a claim, you (or your business) would be responsible for making up the shortfall, for example:

A customer is seriously injured on your business premises.

They make a claim against you, and the court rules against you.

The customer is awarded £5 million in compensation, but your public liability policy has an indemnity limit of £2 million. Your business is responsible for paying the remaining £3 million.

Depending on the terms of your policy, you could also face paying a percentage of your own legal fees, as your policy limit won’t be sufficient to cover them either.

How to choose the correct limit of indemnity for your business

What’s right for your business will depend on the activities you carry out and the level of risk it involves. Common types of liability insurance include:

Public liability insurance

Public liability insurance can cover the cost of a claim made against you if a member of the public blames your business for injuries or for damage to their property.

If your business deals with the public regularly, you can expect to need higher levels of indemnity than someone who works with clients remotely.

In the past, an indemnity limit of £2 million was relatively standard. However, many contracts (particularly for those working with local authorities) now require businesses to have an indemnity limit of at least £5 million. Depending on the industry you work in, you may even be expected to have indemnity cover up to £10 million.

When it comes to choosing an indemnity limit for your public liability insurance, consider:

How often does your business come into contact with members of the public? How many visitors do you get to site on a daily basis?

What are the risks that could result in a claim (think about hazards at your business premises or the equipment you use)?

Whether there are any minimums set by your client contracts.

Whether you’re holding any special events which could see increased visitors to your site.

Does your business work on third-party sites and public spaces?

Employers’ liability insurance

If you have employees, you legally must have at least £5 million in cover. However, most policies automatically give up to £10 million of employers’ liability insurance.

Considerations for choosing a level of indemnity for employers’ liability insurance include:

The number of employees you have (the higher the number, the greater the risk of multiple claims).

Your business activities; higher-risk industries will be expected to have indemnity cover to reflect this (for example, manufacturing and construction).

You can find more information about managing risks to employees from the Health and Safety Executive (HSE).

If you don’t have employers’ liability insurance (but need it), you can be fined £2,500 for each day you go without it.

Professional indemnity insurance

Professional indemnity insurance is often taken out by professional services businesses, for example, architects, accountants, solicitors, and conveyancers.

The level of indemnity cover you need will depend on the type of services you provide and to whom. If you have multiple clients or work on high-value projects, you’re more likely to need higher levels of cover.

These policies cover you if a client claims against you for negligence or mistakes in your work that cause them to suffer financial losses. For example, if you’re an architect and made mistakes in blueprints you provided, leading to building delays or issues with building regulations.

When you’re setting a level of indemnity, consider:

The number of clients you work with.

The value of the potential consequences of making an error on a project. For example, the value of a building project contract is likely to be less than the cost of completely demolishing and rebuilding should there be an issue with the construction material recommended.

Any industry minimums set by professional regulatory bodies.

Liability insurance tailored to your business

Choosing the right limit of indemnity is critical when it comes to protecting your business from potentially damaging financial losses. As an independent insurance broker, we can provide tailored advice, helping you to identify risks so you can decide what’s best for your business.

While core liability policies include those we’ve covered (public liability, employers’ liability and professional indemnity), you may also need to consider additional products depending on your activities. These could include:

What’s the difference between limit of indemnity and sum insured?

Limit of indemnity and sum insured both describe the maximum payout from an insurance policy, but they’re not the same (even though they’re often used interchangeably):

Sum insured

The sum insured is the amount your policy will pay to replace or repair physical assets owned by your business. This can include stock, buildings, and equipment. Business interruption insurance policies also have a sum insured, and this is the maximum amount you’ll receive for lost income or increased costs of working in the event of a claim which stops your business operations.

Limit of indemnity

The limit of indemnity is the amount your policy will pay out for legal liabilities.

Need help with your insurance?

If you’d like help and support to protect your business, speak to a member of our team.

Speak to us: 01603 218000

Guide to choosing the right indemnity limits for your business

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What happens if the limit of indemnity isn’t enough?