Running a business is no easy undertaking. You have to prepare yourself for all the risks and challenges that may come your way. But the question is, how prepared are you to face such predicaments?
If you’re running a business, there’s a chance of becoming liable for damages caused by your company. There’s also a chance of facing legal claims due to negligence in providing expert advice and services, which could cost thousands or even millions of dollars.
Such claims and other legal actions are among the major threats you may encounter. They can make your business crumble, fall to its knees, and become bankrupt eventually, losing everything you worked hard for.
Nobody knows when such circumstances will arise, so it’s best to prepare as early as possible. In that case, you might need to apply for professional indemnity insurance—a type of business insurance that can protect your firm from claims and liabilities.
If this is your first time hearing such terms, this post may help you. In this article, you’ll learn what professional indemnity insurance is and why you need to apply for one.
What Is Professional Indemnity Insurance?
Professional indemnity insurance is a type of business insurance that protects professional firms from financial consequences due to the following issues:
- Breach of professional duty
- Negligence in your professional services
- Errors, omissions, or malpractice in your professional services
If someone or an entity file a claim to compensate for the damage your business has caused, the insurance will cover the claims on your behalf. This way, your business assets will remain safe and protected from a supposed-to-be financial crisis.
With professional indemnity insurance in place, you’ll be able to work without the fear of getting sued by your clients in the future. In other words, it enables you to perform your professional duties with peace of mind and confidence.
Moreover, professional indemnity insurance covers not only the business entity but also those involved—your employees. Hence, you’re also protecting them from financial consequences by having this insurance.
How Much Is Professional Indemnity Insurance?
The cost of having an insurance policy depends on many factors, such as the history of claims, annual income, and the type of profession. For example, a recruitment consultant will likely pay less than a financial adviser because it’s less risky than the latter.
Generally, the cost of professional indemnity insurance is between 0.25% and 5.00% of the annual income of your business. This percentage can be higher or lower depending on the current market and other risk factors.
Minimum premiums are also applicable—the starting rates offered by insurance companies to protect a business from risks. However, not all providers may offer this, so call your insurance provider and see what you can get.
What Does Professional Indemnity Insurance Cover?
The coverage of professional indemnity insurance includes:
- Legal costs (e.g., attorney fees, solicitor’s fees, etc.)
- Compensation bills
- Professional or specialist policies
- Policies that fit your nature of business (e.g., information technology (IT), recruitment agency, accountancy, etc.)
- Claims due to errors or mistakes in your professional services or advice that cause a financial crisis to your clients
On the other hand, it doesn’t cover claims regarding copyrights, trademarks, and breaches of confidentiality. However, you may apply for optional extras if these claims are necessary for your business.
Here are some situational examples of professional indemnity claims covered by the insurance policy:
- A business consultant delivers a confidential document that contains sensitive client data to the wrong person.
- A graphic designer illegally uses an image without asking for the owner’s permission, causing a trademark or copyright issue.
- An IT consultant fails to specify the right network cables, causing their client to pay for additional service fees when they shouldn’t have.
Why Do You Need Professional Liability Insurance?
Here are some reasons you should consider getting professional indemnity insurance:
Your Terms And Conditions Aren’t Enough
The terms and conditions document (T&Cs) is an agreement or contract between you and your client. It contains all the rules and conditions your client has to accept if they want to do business with you.
But if your client gets mad, they may not bother taking a second look at your T&Cs. If they lose more and think it’s all because of you, they’ll likely make you pay for it.
What’s worse? The judge may agree with them and make you settle all the charges and claims filed against you. But you can prevent all of these by applying for professional indemnity insurance.
Your Business Assets Are At Risk
Facing a legal claim can be extremely expensive. In fact, it’s the reason why some businesses, mainly small ones, are forced to close down permanently because they’re no longer able to fund all the legal costs it entails.
But with professional indemnity insurance, you don’t have to bear all the legal fees alone. Your insurance company will pay for them once you make a claim, whether you’re proven to be liable to all the allegations filed against you or not.
Your Reputation May Be Damaged
Professional indemnity insurance ensures that your reputation won’t be harmed. It ensures the success of your operations despite all the allegations against you. With the means it can provide, you’ll be able to defend yourself from all the claims and protect your reputation.
Your Client Isn’t Always A Friend
Your seemingly angelic client could transform into a monster if they didn’t get what they paid for. It is true, especially when money is involved.
It might be a good idea to resolve any misunderstanding between you and your client in private. However, some clients may use this situation to their advantage to extract more money from you.
That’s why it’s always a good idea to protect your business with professional indemnity insurance if such cases arise.
Final Words
Professional indemnity insurance is a type of business insurance that protects professional firms from claims and allegations filed against them due to negligence and breach of duty.
With this, you’ll be able to save your business from bankruptcy and defend your reputation. If you don’t have one yet, it’s time to call any insurance provider and seek help now.