Professional Indemnity Insurance for sole traders – do you need it?

If you’re a sole trader offering services or advice to clients, it’s worth considering whether you need Professional Indemnity Insurance (PII).

This guide explains how PI insurance works, when it applies to sole traders, what it covers, and how to choose the right policy. It also includes examples of sole traders who typically take out PI cover, and how to get an online quote.

If you’re short on time, you can get an instant PI quote from Qdos here.

What is Professional Indemnity Insurance?

Professional Indemnity Insurance is designed to protect you if a client claims your work caused them a financial loss. This might happen if you gave incorrect advice, missed something important, or delivered work that didn’t meet expectations.

As a sole trader, if you provide a service where people rely on your expertise or judgement, there’s always a chance a mistake could lead to a complaint – even if it weren’t entirely your fault.

Without insurance, you could be left covering legal costs, compensation, or both. But with the right policy in place, your insurer handles the claim and helps you deal with any fallout.

It’s about ensuring that one small issue doesn’t put your entire business at risk.

Who needs PI insurance as a sole trader?

Not every self-employed person needs professional indemnity cover. But if your work involves any of the following, it’s worth considering:

• Giving advice or consultancy
• Creating designs, documents, or digital content
• Handling sensitive data or intellectual property
• Delivering services where mistakes could cost your client money

Even if your clients don’t insist on it, PI insurance gives you protection and peace of mind – especially if you work with larger businesses, charities, or government bodies.

Real-world examples of sole traders who use PI cover

Here are some typical situations where sole traders often take out PI insurance:

• Marketing consultants – If your strategy results in lost revenue or reputational damage, the client may seek compensation.
• Website developers – Bugs, security flaws, or downtime could result in lost business for your client.
• Tutors or education consultants – If your materials are misused or found inaccurate, or a parent claims your input led to poor outcomes.
• Health and safety trainers – If a client relies on your advice and it leads to a workplace incident.
• Copywriters and designers – If your content is accused of plagiarism or includes a factual error that damages a client’s reputation.
• Bookkeepers – If a mistake in your records leads to HMRC penalties or an incorrect tax return.

Even freelancers with only a handful of clients can benefit from the protection PI insurance provides.

What does PI insurance cover?

While cover varies between providers, most PI policies will include protection against:

• Negligence – where you make a mistake or don’t meet expected standards
• Loss of documents or data – including both physical and digital files
• Infringement of IP – such as accidental use of copyrighted material or brand assets
• Defamation – if your content or advice harms someone’s reputation
• Breach of confidence – such as sharing confidential client information by mistake

You’re also covered for the cost of defending yourself legally – and, if necessary, compensation awarded to the claimant.

How much cover do you need?

There’s no set rule. The right level of cover depends on:

• The size of your clients – larger organisations are more likely to sue and seek higher compensation
• The value of your typical contracts
• The worst-case financial impact of a mistake
• Whether your clients require a specific minimum cover level

Many sole traders opt for a policy with between £100,000 and £1 million of cover. You can always increase the limit later if your client base or project size grows.

Is PI insurance mandatory for sole traders?

Usually not – but there are exceptions.

Professional indemnity insurance is compulsory if you’re a sole trader working in a regulated profession such as:

• Accounting (if you’re a member of a chartered body)
• Legal or financial services
• Architecture, surveying or engineering (via a professional institution)

Outside those industries, you’re not legally obliged to have PI insurance – but many clients, especially in the public or corporate sector, will expect it as part of your contract terms.

What to look for in a policy

Not all PI insurance policies are the same. When comparing quotes, ask:

• Is the policy tailored to sole traders or small businesses?
• What is and isn’t included – are legal fees covered?
• What is the excess per claim?
• Does the policy cover past work (retroactive cover)?
• Is it based on “any one claim” or an annual limit?
• Can I pay monthly instead of one annual lump sum?

Also check whether the insurer has good reviews and a track record of handling claims fairly.

Can you claim it as a business expense?

Yes. PI insurance is a legitimate tax-deductible business expense.

If you’re a sole trader, you can include the cost of your policy in your allowable expenses when completing your Self Assessment. This reduces your taxable profit, so you’ll pay less Income Tax.

Get a PI insurance quote from Qdos

If you’d like a fast, tailored quote from a provider that understands sole traders and freelancers, try our long-term insurance partner Qdos.

They provide Professional Indemnity Insurance for sole traders across a wide range of sectors, including technology, marketing, training, creative, and consultancy roles.