Professional indemnity insurance – what you need to know
Physical risks such as flooding and fire are one thing, and apply to domestic homes as much as businesses. But companies have other issues to consider such as the potential risk of legal action, depending on the nature of their business. Professional indemnity insurance is a form of cover which may pay out for legal costs and as such may be a potential lifesaver in certain circumstances.
Typically this kind of cover pays out for solicitors’ fees and compensation costs if you are taken to court as a business or sole trader. This may happen because the client thinks you have done a poor job, and the cover may apply to pretty much anybody who offers professional advice.
In the past it was mainly associated with the likes of architects, solicitors, and doctors. In some circumstances a trader may need professional indemnity insurance, or PII as it is known, in order to gain membership of professional bodies or to comply with legal requirements.
These days with the emergence of a more legally aware society, professional indemnity cover may be useful for a wider number of firms such as IT contractors, builders, designers, management consultants, and a whole range of other experts.
Provided somebody stays within the policy limit, payouts may be made towards legal costs and compensation right the way through the court system, from initial hearings all the way up to the High Court if the case gets that far. Furthermore, payouts are not dependent on whether or not the claim against you is valid or not. Even if it is found that the claimant’s allegation is correct, you would still get a payout.
Professional indemnity insurance comes in various different levels, and the top payout level on a policy is important. Choose something too low, and you may end up under-insured, forced to pick up the difference if your case overruns in terms of legal and compensation costs.
Choosing something to high may mean that you end up over-insured, paying for a level of protection that you don’t really need.
You may choose to carefully review your turnover, client list, and other factors before deciding on what level of cover to choose as it is important not just in terms of the premium costs.
Professional indemnity insurance limits may be quite flexible depending on the provider, allowing you to specify a level which stays within your budget but which provides adequate protection in the event you do face that unwanted court case.