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What is professional indemnity insurance?

Harriet Meyer / 14 March 2015 ( 27 February 2020 )

Running your own business is challenging enough, without worrying about a mistake leading to an expensive claim you simply cannot afford. Read our simple guide to professional indemnity insurance:

Calculator with losses
Professional indemnity insurance can mitigate losses if a customer makes a claim against you

This is where professional indemnity insurance comes in. A form of business insurance, this is designed to pay out if you receive a claim from unhappy clients.

Do you need professional indemnity insurance cover?

If your business offers advice or professional services to other businesses, you might want to consider taking out professional indemnity cover.

Ask yourself whether a mistake may cost your client money, or if there is a risk of problems with your work. Essentially, could the quality of your work be called into question?

Even if you haven’t done anything wrong, legal fees can soon cripple your bank balance.

When might this pay out?

For example, if a builder botches a house-building project, and the roof collapses, the client could lose money through wasted time and materials. If the builder doesn’t have insurance to cover this cost, they may have to pay a massive claim.

Similar scenarios can be applied to a wide range of professions, including financial advisers, journalists and accountants, where a client could claim negligence. This may involve anything from loss of data, to copyright breaches, defamation or intellectual property disputes.

Setting up as a sole trader? Read our guide.

Any tips for finding a policy?

  • Some brokers specialise in providing cover for specific professions. So if you are a member of a trade association, ask if it can recommend a provider.

  • Whichever you pick, remember to read the find print to ensure your particular business is protected. Are there any particular areas that are at risk of a claim? If so, make sure you’re covered.

  • Cover levels vary dramatically, from £50,000 to as much as £5 million. You may have to pay for a particular limit depending on your work, as clients could demand a certain level of cover.

  • If you’re going to invest in a policy, don’t be stingy. It’s there to meet potentially massive costs, so you want to make it a valuable part of your financial planning.

What should you be paying for this?

Your premium will depend on a number of factors, including:

  • The level of cover you need: if you opt for one with millions of pounds worth of cover compared to several hundred thousand, this will see premiums soar. The insurer will charge depending on how much it might have to pay out in the event of a claim.

  • The business you have: if your particular industry is considered risky, with a large proportion of claims, you will pay more for cover.

  • The size of your contract with clients and customers: the more the value of this is, the greater the potential claim.

  • The size of your business: the higher your turnover, the higher the fee for insurance.

Find out how to register as a limited company.


The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.

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