PI explained. A simple guide to Professional Indemnity insurance
Professional Indemnity Insurance (PI) is designed for anyone who gives advice or offers a professional service or designs.
Often referred to as PI insurance or professional liability insurance, it covers legal costs and expenses incurred in your defence if you are alleged to have provided inadequate services, advice or designs that have caused your client to lose money.
What is covered with PI insurance?
You’re covered for the legal costs involved of defending yourself in a professional negligence case, including any compensation pay-out at the end.
Among the things you could be sued for are losing client data, goods or money, libel, or unintentionally breaching copyright or confidentiality agreements.
You may not have done any of these things, but you’d still need to pay legal costs if it goes to court, which can amount to thousands of pounds, and take you away from running your business while you deal with the case.
Do I need Professional Indemnity insurance?
While it is not always compulsory, if you offer a professional service it is highly recommended.
Sectors including legal and accountancy, and any role where you handle client data or intellectual property will usually require PI insurance to conform to regulatory requirements.
You may also need to have it as part of your contract in roles such as management consultancy or IT.
Carrying PI insurance is a good idea as it gives you the confidence to carry on with your work knowing you are covered.
With PI cover you can prepare for the claims that are most likely to affect your line of work, such as software errors if you work in IT or libel if you’re a journalist.
PI can be added to any other business insurance package you may have.
How much does professional indemnity insurance cost?
The cost varies depending on a number of factors, including the amount of cover required.
Caunce O’Hara offer PI insurance from as little as £6.54 per month (£78.40 per year) for a wide range of professionals.
It’s sensible to base it on a worst-case scenario for the cost of putting your mistake right for a client, along with the accompanying legal fees and business losses to the client.
Any One Claim and Aggregate Policies explained
Any One Claim and Aggregate refer to the basis on which professional indemnity insurance cover is written.
An Any One Claim PI insurance policy provides cover up to the full limit for each individual claim made during the period of insurance.
For example: If two claims of £60,000 are made against the same £100,000 Any One Claim PI insurance policy, the insurer would cover the costs of both claims because they are both within the £100,000 policy limit.
An Aggregate policy provides cover up to the full limit for ALL claims made during the period of insurance.
For example: If two claims of £60,000 are made against the same £100,000 Aggregate PI insurance policy, the insurer would only pay up to the £100,000 limit. As both the claims total £120,000, the outstanding £20,000 would need to be covered by other means.
The basis of cover varies from one insurer to the next, but Any One Claim is generally considered to be more comprehensive option.
Claims Made basis explained
A Claims Made PI insurance policy provides cover for claims notified to the insurer during the period of insurance.
On Claims Made the complaint/claim has to be reported to the insurer on cover when it is received. The wrongful act (work carried out) can be any time in the past since the retroactive date.
If the insurance policy has been cancelled or not renewed your cover will end. If you need to make a claim, regardless of when the wrongful act occurred, you will NOT be covered by that policy.
This is a key reason why carrying professional indemnity insurance is important, to ensure your business is protected. Even if you have retired from your business, a claim can still be brought against you. In many cases this can be up to 6 years after the wrongful act occurred.
This is when professional indemnity run off insurance becomes relevant.
Protect your business with professional indemnity insurance. Click here to get a quick PI quote today or call 0333 321 1403 and speak to our friendly advisers.
A freelancers guide to insurance
Back to Knowledge Centre