Professional indemnity insurance is essentially a type of liability insurance that is intended to safeguard individuals and businesses that provide expertise or advice to third parties. It is also referred to as errors and omissions insurance and professional liability insurance. It is designed to provide protection should a customer allege that you provided inadequate or faulty services and advice. With professional indemnity insurance, you will be provided with coverage for the cost of your legal defense, along with funds you might need to compensate a client subsequent to a claim being made against you.

You should not confuse professional indemnity insurance with other categories of business insurance that provide coverage for more ‘tangible’ grievances like those outlined below:

• Employers’ Liability Insurance

This is a legal requirement for businesses with employees. It safeguards you if a worker claims compensation resulting from an illness or accident that arose due to being employed by you.

• Public Liability Insurance

Cover claims made by members of the public should they be injured or experience property damaged while you work on their behalf.

• Product Liability Insurance

If a member of the public becomes ill or injured or experience property damaged because of a product you have distributed, supplied or manufactured, you could be held liable. Product liability will cover your legal defense and subsequent compensation.

Things Covered By Professional Indemnity

Legal Defense

If a claim is brought against you by a client, you will be required to mount a defense in court whether or not the claim is justified. This insurance will provide coverage for the associated legal expenses.

Run Off Insurance

If your business is ceasing operation, a claim may still pop up in the future. This insurance is to ensure you are not left liable and the claims are still covered.


If a client wins a case against you, they will likely be awarded the money they lost also be awarded compensation. These are a professional indemnity policy.

The Amount of Professional Indemnity Insurance Needed

Typically, professional indemnity insurance is sold in varying limits. We asked Mark Vanzo from Smart Business Insurance and he said to determine the amount of coverage needed, the following should be considered:

• The number of the clients you have
• The size of your business
• Are you a part of a regulated industry?
• How much it might cost to defend yourself in court

The amount of cover that will be required will be dependent on the levee of exposure that a client has.

Businesses that Require Professional Indemnity Insurance

Professional indemnity insurance is legally required for businesses. Actually, the only business insurance that is legally required is employers’ liability insurance; this is a requirement for the majority businesses with employees.

However, this type of insurance is compulsory for the members of some professional bodies and a requirement by some regulators. These include financial advisers, solicitors, architects, accountants and some healthcare professionals. Additionally, it is required by some client contracts. This is an indication that it is effectively compulsory for some professional businesses.

When you are determining whether or not professional insurance is obligatory for your business, you should check the guidelines from your professional body and your regulator. It is also important for you to check the contracts of your clients.

Even though professional indemnity insurance might not be required for your business, you could decide that it is a vital insurance to have. It can compensate for claims made against you for making a mistake in your work or negligence. This is an indication that it is an especially valuable insurance for any business that provides a professional service, handles intellectual property and client data and/or provides advice. This makes it common with businesses such as IT consultants, tutors and designers.