- Date : 04/01/2020
- Read: 4 mins
Professional indemnity insurance is one of the best ways to safeguard your business and career from potential loss.
We all make mistakes; after all, to err is human. However, not all humans are forgiving, especially when it comes to their money. If you, as a business service provider, cause severe financial loss, damage to property or any other harm to a client due to an error of judgement, incorrect or inadequate service or advice, then your client can seek compensation from you. This is where Professional indemnity insurance comes to your rescue.
What is professional indemnity insurance?
This insurance provides ‘indemnity’ if a company commits an error, and covers the legal costs the company may have to pay to defend the claim. And if the company is proven wrong in court, the insurer pays the compensation to the client.
This type of insurance protects professionals against loss or financial burden that could arise from a range of scenarios such as negligence, loss of documents, goods, or money, unintentional breach of copyright, and defamation.
Importance of professional indemnity insurance
Businesses are often sued because of the mistakes they make. If a client files a legal case, the company could suffer losses that might be hard to recover from, which makes it necessary for companies to have adequate cover. This insurance allows professionals to provide services to clients without losing sleep over the possibility of errors.
Related: Why you need to supplement 'indemnity' health covers with 'defined-benefit' health insurance plans
Benefits of professional indemnity insurance:
Reduces risk – You do not have to worry about paying for any legal matters from your own pocket for unintentional errors you might make. This allows professionals to do business without worrying about how much potential errors could cost them.
Trust factor - Professional indemnity insurance also works as a marketing tool. Clients know that if you make an error, you will take steps to fix it. Having this insurance in place shows that you will take complete responsibility for your business, and this helps win a client’s trust.
Lower chances of loss- If a business involves risks, the cost of services usually increases. However, this means that companies cannot price their products and services competitively, which in turn could cause a decline in business. Professional indemnity insurance protects such companies against unfortunate events, and helps them remain competitive.
Professionals who must buy this insurance
Apart from big corporations, individual professionals must also protect themselves against possible claims. Doctors, lawyers, engineers, and other such service providers in the health care industry must have this insurance. It is also suited for advisers as it can protect them against any errors in judgement that might harm their clients.
Things to keep in mind before buying this insurance
Professionals and companies must analyse their budget and choose a policy that suits their finances. Consider the premium cost and the probability of lawsuits before buying this insurance.
Buy a policy that suits your profession and industry. To know this, find out the liabilities in your field of work. Ask yourself, do you need protection against negligence, loss of paperwork, or breach of confidentiality? This will help you buy the right kind of insurance which will prove beneficial in the long run.
What is not covered under professional indemnity insurance?
Professional indemnity insurance might not cover claims the client made before you bought the insurance, or bankruptcy filed by the professional or intentional damage caused to clients. It has several other exclusions as well, including-
- Claims arising out of contractual liability
- Infringement of copyright, plans, trade name, patent or trademark
- Fines, penalties and services rendered under the influence of drugs/ alcohol
- Liabilities arising out of criminal acts, terrorism and war or nuclear perils.
The bottom line
Professional indemnity insurance is the need of the hour for anyone who provides advice or services to clients. It is naïve to believe that mistakes will never happen in your business. The best way to safeguard your business and ensure your peace of mind is by buying the right professional indemnity insurance. That way, you have a way to settle legal costs and compensate your clients, if the need ever arises.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment, insurance, tax or legal advice. You are encouraged to separately obtain independent advice when making decisions in these areas.