Why do you need Professional Indemnity insurance?
Posted on 4th February 2021 at 10:04
As a small business owner, ensuring that you have the correct insurance in place helps to protect you, your business and your clients. It is advisable not to cut costs when purchasing insurance for your business as this can cost you in the long run.
Professional Indemnity insurance (also can be known as Professional Liability insurance) covers any legal costs should they be required, as well as compensation payments in the case of any errors or mistakes you make, or get accused of, that cause financial loss to your client.
For example, if a project manager made an error on a project which resulted in a three-month delay, costing their client £400,000 in lost time, the PI insurance would cover defence costs and any liability up to the limit of the policy.
These instances are rare, but all of us are only human and mistakes can happen. Having Professional Indemnity insurance in place gives you and your client peace of mind.
It is not a legal requirement to have PI in place in your business, but can often be a condition for you to have it if you are a member of any professional bodies. Also, if you are a contractor, your contract will usually specify that you need to have particular insurances. If you fail to have them in place, you will be in breach of your contract. Make sure you check the contracts carefully and then ensure you purchase the required policy.
What does Professional Indemnity Insurance cover?
It can cover you for any mistakes that are made including:
Unintentional breaches of copyright
Unintentional breaches of confidentiality
Data protection prosecution costs
Loss or damage to documents
The amount of cover you need will depend on both the type of work you undertake and the level of risk. Some factors to consider are:
Size of your business, including annual turnover
Size of the contracts you undertake
Potential legal costs you could potentially face
You can extend your cover as and when your business grows.
What if a claim is made against you?
A claim may arise because a client is dissatisfied with your work or has suffered financial loss due to a significant error or you haven’t delivered what was agreed. If a client makes a claim against you, your insurance provider will need to be informed. Contact them immediately to inform them of the situation.
Ensure you provide accurate information so that the insurance provider can prepare in case of a full claim being made against you.
In summary, Professional Indemnity insurance is definitely something that all businesses should seriously consider investing in. However, it is the decision of the business owner whether they see it necessary or not. It is unfortunate that claims and disagreements do occur between businesses and PI insurance protects both you and your client’s interests. It also helps to safeguard your reputation and gives you peace of mind.
Getting the right cover for your business is vital. We partner with one of the very best insurance providers on the market and can provide a discount on their premiums.
If you want to know more about insurance and find out how to get that discount, get in touch with us at Effective Accounting. We have worked with contractors and small businesses for over 10 years, and our founder, Nicola, has over 15 years’ experience in the industry.
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
Tagged as: Insurance
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