If you run a limited company and provide any professional service to clients, you should consider taking out Professional Indemnity Insurance.
It might be a contractual requirement, or you want to have peace of mind, or a combination of the two.
PI insurance is a type of policy that will protect you from claims made by clients who are not satisfied with the work you have carried out.
It can also cover dishonesty, loss or damage to the customer’s data, defamation, and any alleged breaches of your client’s intellectual property.
This guide explains how Professional Indemnity Insurance works, whether it’s relevant to you, and how to choose the right type of policy for your business.
If you’re in a hurry, you can get a competitive instant quote from Qdos here.
What is Professional Indemnity insurance?
Professional indemnity insurance will protect you from potentially costly claims by unhappy clients. There are a variety of potential danger areas, including:
- Negligence – where you have been negligent, or where you have breached a duty of care to your client.
- Loss of documents or data – where you have mislaid important paperwork or data belonging to a client.
- Intellectual Property (IP) – where you have accidentally infringed copyright, trademarks, or other types of IP owned by other businesses or individuals.
- Defamation – where you have created or used material about other organisations, that may cause offence.
- Dishonesty – where someone from your business has stolen from a client.
Not all PI policies will cover you for every one of these scenarios. When you are researching policies and getting quotes, it’s important that you check exactly what each one covers.
Should I buy Professional Indemnity insurance?
Professional indemnity insurance is mandatory for most regulated professions, including chartered accountants, solicitors, and chartered surveyors.
It is also increasingly common for clients – especially recruitment agencies, government bodies, and large corporates – to insist that limited company contractors have PI cover in place before engaging them.
This is particularly relevant for IT consultants and other skilled professionals who work outside of IR35.
Even if you aren’t contractually required to do so, you may decide to take out cover if you provide advice, deliver projects, or handle client data. The peace of mind it provides can make it a very worthwhile purchase.
Historically, only those working in the ‘professions’ took out professional indemnity cover. However, the growth in consultancy and outsourcing has created a much broader group of individuals providing professional services through their own companies.
If you’re providing a service or advice of any kind, it’s a good idea to get professional indemnity insurance. A professional mistake could result in a claim that puts your company at risk – and without cover, you may be personally liable as a director.
Professions that typically take out PI cover include:
- IT consultants and contractors
- Business advisers and coaches
- Business and management consultants
- Financial advisers
- Engineers
- Estate and letting agents
- Marketing and media professionals (e.g. copywriters, social media consultants)
- Educational consultants and inspectors
- Event and wedding planners
- Website designers and SEO professionals
- Health and safety consultants
- Book-keepers
When you consider that having cover could be the difference between protecting and losing your business if a client makes a claim, many see it as a sensible investment.
What protection will a professional indemnity policy offer me?
PI cover will typically protect you in the following ways:
- You will be covered if you have made a mistake that leads to a client making a claim against you.
- Your insurer will take care of any legal representation you require.
- If you lose your case, most policies will also cover the cost of any damages awarded to the client. The amount of financial cover you receive depends on the level of protection you opt for when taking out the policy.
- A policy will also cover the costs of putting right any mistakes you have made.
- Many policies will protect you if you lose a client’s documents while they are in your possession.
- Some even provide cover if an employee — but not a company director or partner — has stolen from a client.
How much cover do I need?
The amount of cover you need may be dictated by your client or by industry rules. If not, you’ll need to assess your own level of risk by asking:
- What is the value of the contracts or projects you’re working on?
- How much damage could a mistake cause — and how much might a client try to claim?
- What would it cost you in legal fees to defend a case?
- What’s the worst-case scenario, and could your business survive it?
Most PI policies allow you to select a level of cover that suits your situation.
The lowest level of cover typically available is £50,000, while £1 million to £5 million is common for larger firms or contracts.
Should I take out retroactive PI cover?
When taking out professional indemnity insurance, you may be offered ‘retroactive cover’. This allows the policy to include work you’ve already completed before the policy started.
If your company has been trading for a while without PI cover, it’s wise to include retroactive protection.
Some insurers specify a retroactive date in the policy wording – any work done before that date won’t be covered. If no date is set, the insurer will usually cover all previous work, provided you confirm there are no known risks or claims in progress.
What to look out for when choosing a professional indemnity policy
A quick search online will return dozens of providers offering PI insurance. Some aspects to consider:
- Can the policy be tailored to your business type and risk level?
- Can you get an instant quote and buy online?
- What is the excess per claim?
- Is there a monthly payment option available instead of a one-time upfront lump sum?
- Does the insurer have a good reputation and track record of paying claims?
- Is the cover based on an ‘annual aggregate limit’ or ‘any one claim’?
Be sure to compare like-for-like policies. For example:
If a policy offers £50,000 cover on an annual aggregate basis, that’s the total amount it will pay out across all claims in a single policy year. If you face two claims – one for £35,000 and one for £25,000 – the total of £60,000 exceeds the £50,000 limit, and you’ll need to pay the difference yourself.
A policy on an ‘any one claim’ basis will pay up to the full amount of cover for each individual claim – offering greater protection but usually at a higher premium.
Run-off cover
As most PI policies operate on a ‘claims made’ basis (rather than ‘occurrence’), you could be liable for claims long after the work was completed – even if you’ve closed the company.
Run-off cover protects you against this risk. If you’re planning to retire or cease trading, it may be worth keeping your PI policy active for a few years.
Getting quotes and buying a policy
It’s always a good idea to get several quotes. Most specialist insurers offer fast online forms, so it doesn’t take long to compare.
Many contractors and new businesses also ask: “Is professional indemnity insurance tax deductible?”
Yes – PI insurance is a legitimate business expense and can be claimed against your company’s profits.
If you also need other cover (such as public liability or employers’ liability), you may be able to bundle everything into one policy — potentially saving time and cost.
Finally, remember that the cheapest policy isn’t always the best. Read the small print, and make sure you know what’s included.
Get a Professional Indemnity insurance quote
If you’re a limited company contractor or consultant, try our long-term insurance partner, Qdos.
They specialise in providing cover for individuals and companies that offer contract services to third-party clients.