What is professional indemnity insurance?

Starting your own business comes with a whole host of benefits, but there can also be some daunting aspects. For example, what happens if a client is unhappy with your work? Could they try to sue you?

The answer is, sadly, yes. If a client suspects you of negligence or accuses you of making a mistake that cost them money, you might end up with court fees (and compensation costs if they win the case). No matter how much pride you take in your job, you can’t rule out this possibility altogether.

That’s where professional indemnity insurance comes in. It’s like a papery Robin to your Batman; a nice little bit of cover in your back pocket designed to protect your company financially and give you peace of mind.

Don’t worry if you’re not sure what we’re talking about. Here, we’ll break down exactly what public liability insurance is. And we’ll look at whether you really need it.

What is professional indemnity insurance?

Professional indemnity insurance is also known as PI insurance or indemnity cover. It’s a kind of insurance that’s designed to protect business owners, freelancers and self-employed people if a client claims that your work was inadequate.

If you provide a professional service or give advice, a client could sue you if they’re unhappy with your work. For instance, they might say that you were negligent or made a mistake that cost them money.

Obviously, we all hope this doesn’t happen! But if it does, professional indemnity insurance could help to cover court costs and any compensation payments.

Professional indemnity insurance is often confused with public liability insurance. However, they’re completely different things, so it’s important not to mix them up.

Public liability insurance can protect your business if an accident occurs that injures or even kills your client or causes damage to their property. Professional indemnity insurance is about protecting yourself against costly mistakes in your work.

Why do I need professional indemnity insurance?

Being human means that, at some point, you may make a mistake at work. And this could cause accidents, injuries, or damage. Whether through negligence or just a slip-up in design, advice or consultancy you provide, you could be liable. This may have a huge effect on your business.

Tradespeople often bridge the gap between what an architect or engineer wants to happen, and what is feasible. Professional indemnity insurance can cover this gap.

In other words, professional indemnity insurance is designed to protect and safeguard your company against any legal or financial ramifications.

Some clients might insist you have this insurance in place before they agree to work with you. But even if they don’t, it can give you important peace of mind that you’re protected against anything from negligent content to erroneous advice.

As a member of Checkatrade, you can showcase your insurance and accreditations on your profile page. It’ll also let your customers see that you’re willing to go the extra mile and take extra measures as a tradesperson.

Plus, if you’re a Checkatrade member, you can get exclusive member discounts on things like insurance.* Just log in to our Member’s Area to see the latest deals.

If you’re not sure what kind of insurance is right for you, our guide to finding the right tradesperson insurance can help.

Who needs professional indemnity insurance?

Professional indemnity insurance might be suitable if you’re self-employed or run your own business. It can allow you to protect your business against legal or financial complications. Here, we’ll look at the importance of professional indemnity insurance for different job roles and businesses.

Do I need PI Insurance as a contractor?

Contractors work on a range of different jobs and locations, so can make mistakes the same as any other tradesperson. These miscalculations might lead to expensive legal costs, which could add up to more than you can afford to pay. It’s not a legal requirement, but some businesses will require you to have this insurance as part of your contract.

Do I need professional indemnity insurance in construction?

As a builder, you will be well aware of the potential for mishaps and negligence on building sites, be it residential or industrial. There are several scenarios where this kind of cover might be preferable:

• Building mistakes
• Poor workmanship
• Health and safety issues
• Negligence
• Financial losses for your customers resulting from your work

Do electricians need PI Insurance?

The work electricians do is often varied and almost always dangerous and risky due to the nature of the job. As such, any mistakes could be devastating, whether they impact your customers or the electrical systems.

If the worst happens and your client is injured, their home is damaged, or the work you do isn’t safe because of the design, advice or consultancy you provide, professional indemnity insurance could cover any financial or legal repercussions. This could be one of the reasons why electricians might want to consider professional indemnity insurance.

Do limited companies need PI Insurance?

Starting a limited company is a great way of separating yourself and your business in the eyes of the law. However, that doesn’t mean you won’t be affected if your work is negligent, poor quality or you make an error on the job. Your company can still be sued and you could run the risk of compensation costs should the worst happen. This is why professional indemnity insurance might be a good fit for your limited company.

It’s also worth noting that many clients will refuse to work with you if you don’t have the right insurance in place. So you know it makes sense.

For more information about the wise decision to begin a limited company, our setting up a limited company guide is an excellent resource designed to support you.

Do I need professional indemnity insurance as a sole trader?

Unlike limited company owners, sole traders aren’t considered legally separate from their businesses. This means you could be personally liable for any legal or financial action taken against you.

The best way to decide is to consider whether you could cope if you need to pay legal fees and compensation to past clients. Remember, professional indemnity insurance is designed to give you peace of mind and could protect you if a client claims your work is dangerous or negligent. This type of insurance is particularly relevant if you plan to give advice to customers.

If you’d like more advice and tips on making the leap from employment to owning a business, our setting up a new start up guide is perfect for you.

Professional indemnity insurance costs UK

Professional indemnity insurance costs vary depending on a number of factors. These include:

• Profession
• Size of the business (eg. number of employees and value of contracts)
• Risk level

 Just remember that quotes will vary depending on your unique circumstances and business.

Luckily, Checkatrade members can get exclusive discounts on things like insurance.* So, you could be saving money while keeping your business safe.

FAQs

What are some professional indemnity insurance claims examples?

There’s a range of situations where a client might complain leading you to make a claim on your professional indemnity insurance. These include but aren’t limited to:

• Negligence
• Bad advice
• Breach of confidential information
• Defamation
• Poor quality work
• Breach of contract

Who does professional indemnity insurance protect?

This insurance isn’t just for certain tradespeople. In fact, it can cover anyone in the trade sector and beyond, from plumbers to carpenters and sole traders to limited companies.

What is covered by professional indemnity insurance?

Exactly what is covered by professional indemnity insurance will vary from provider to provider. However, generally, you can expect your insurance to cover your legal expenses if your client brings a claim against you and you need to defend yourself in court (whether the claim is justified or not). You can also expect your insurance to cover the cost of paying your client compensation if they win their case against you.

What is not covered by professional indemnity insurance?

Every provider will cover slightly different things under their professional indemnity insurance. So, it’s important to check exactly what your insurance policy includes. However, generally, this insurance won’t cover more tangible grievances that are typically covered by other kinds of insurance.

For instance, it won’t cover claims made by members of the public if they’re injured or have their property damaged during the course of your work. Instead, this is covered by public liability insurance. Similarly, it won’t protect you if someone you employ claims compensation due to an accident at work, as this comes under employers’ liability insurance.

If a member of the public gets injured or has their property damaged as a result of a product you’ve manufactured or supplied, you also won’t be covered by professional indemnity insurance. Instead, you’ll need product liability insurance.

How do I claim against professional indemnity insurance?

Normally, you’ll be required to notify your insurance provider if something happens that is likely or may give rise to a claim. In this case, you should let your insurer know immediately and give them:

• Copies of any correspondence you’ve received on it.
• The date when you first became aware of the issue.
• The identity of the client that may be making the claim, and any other people involved.
• A description of the problem and your opinion on whether you’re liable.
• An estimate of the potential financial value of the claim.

Importantly, you mustn’t admit liability or correspond with your client about the claim without your insurer’s permission. They’ll approve all correspondence before it’s released and help to guide you from here.

Content Disclaimer: This content has been created for general information purposes and should not be taken as formal advice. Read our full disclaimer here.

* As you’d expect, terms and conditions apply. The discount offer of 20% off Public Liability for Checkatrade Members (‘the Offer’) is only available to Checkatrade Members who are new Superscript customers. The Offer will be applied to your Superscript policy for a lifetime (applied continuously at renewal). You will be informed of any price changes in good time, prior to the anniversary of your policy. The Offer will not apply to cancellation fees, and cannot be retrospectively applied.

In the event that you cancel your Superscript policy within the first 6 months of cover, we reserve the right to deduct, withhold or charge the total value of the Offer from any payments due to or from you. To be eligible, you must have been directed from Covea or Checkatrade by clicking on the appropriate link or receiving an email directly. The Offer is not assignable and will be automatically applied to your account by Superscript. It will be applied each month, regardless of annual or monthly payment option selection. There is no cash alternative.

The Offer cannot be used in conjunction with any other Superscript offer, voucher or promotional benefit. The Offer is subject to eligibility requirements. We reserve the right to withdraw the Offer at any time. Terms and conditions are subject to change and you may not be informed.