Professional indemnity insurance covers claims that your work or advice caused a client financial loss, including mistakes, negligence and legal defence costs. It's required for some regulated professions, often demanded by clients in contracts, and most policies only cover claims made while the policy is active.
If you sell advice, designs, code, copy or any kind of expertise, there's one question worth asking before you sign your next contract: what happens if a client blames my work for losing them money? Professional indemnity insurance is the answer most service businesses use. Here's what it does, what it doesn't, and how to buy it without getting lost in the jargon.
What professional indemnity insurance covers
Professional indemnity insurance, often shortened to PI, protects you when a client claims your work or advice caused them a financial loss. In the US, the same idea is usually called professional liability or errors and omissions insurance, often shortened to E&O.
- Mistakes and negligence. You miss a deadline that costs a client a launch, give advice that turns out to be wrong or make an error in a report.
- Breach of duty. A client says you didn't do what you promised in your contract.
- Accidental IP infringement. Many policies cover claims that you used someone else's image, words or design by mistake.
- Lost documents or data. Some policies cover the work of replacing client information you lost.
- Legal defence. Your legal fees are usually covered even if the claim turns out to have no merit, which is often where the real expense sits.
What it doesn't cover
PI isn't a catch-all. It usually won't cover deliberate wrongdoing, fines from regulators, contract penalties you agreed to on top of normal liability, or claims you knew about before the policy started. It also doesn't cover injuries or damage to property. That's a different policy.
How PI fits with other business insurance
| Policy | Protects you against | Who usually needs it |
|---|---|---|
| Professional indemnity | Claims that your work or advice caused a client financial loss | Consultants, agencies, freelancers, advisers, designers, developers |
| Public liability | Claims that you injured someone or damaged their property | Anyone who meets clients or the public, or works on site |
| Employers' liability | Claims from your own staff who are injured or fall ill because of work | Most UK businesses with employees, where it's a legal requirement |
| Cyber insurance | Data breaches, hacks and the cost of recovering | Anyone holding client or customer data |
Do you need it?
For some professions, it isn't optional. Solicitors, accountants in practice, surveyors and financial advisers are generally required to hold it by their regulator or professional body. For everyone else, it's usually a commercial choice, but often your clients make that choice for you: larger companies and public sector buyers commonly ask for proof of PI before they'll sign a contract.
Ask yourself three questions. Could a mistake in my work lose a client money? Do my contracts make me responsible for that? Could I afford a lawyer to defend me if a client disagreed with my invoice and made a claim? If any answer is yes, it's worth getting quotes.
The terms that trip people up
Claims-made basis
Most PI policies cover claims made while the policy is active, not work done while it's active. If you cancel your policy and a client complains about an old project a year later, you may not be covered. This is why people keep PI running, or buy run-off cover when they close or retire.
Retroactive date
This is the earliest date of work the policy will look back to. If you switch insurers, make sure the new policy keeps your original retroactive date so there's no gap.
Limit of indemnity
The most the insurer will pay. Match it to what your biggest contracts ask for, and check whether the limit applies to each claim or to all claims in the year combined.
Excess
The amount you pay towards each claim yourself. A higher excess lowers the premium. If those words are new to you, my plain guide to what an insurance premium is explains the basics.
How to buy it well
- List the services you offer, in plain words. Insurers price by activity, so a vague description can leave gaps.
- Check your client contracts for any minimum cover they require.
- Get quotes from a specialist broker and at least one direct insurer.
- Compare the exclusions, not just the premium.
- Tell the insurer about any past complaints. Leaving them out can void the policy.
- Save the policy schedule somewhere you can find it, because clients will ask for it.
If a client complains
Call your insurer or broker before you reply in detail, admit fault or offer money back. Most policies require you to report a possible claim quickly and not to settle without the insurer's agreement, and breaking that condition can put your cover at risk. Keep emails, briefs, contracts and sign-offs together, because a clear record of what was agreed is often what ends a dispute. Stay polite and factual with the client while the insurer decides how to handle it.
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A note on business structure
A limited company or LLC can protect your personal assets from some business debts, but it won't stop a client suing over your professional work, and it won't pay your legal fees. Insurance and structure do different jobs. If you're weighing up structures, see sole trader vs limited company for the UK, or my guide to setting up a US LLC if you trade in the US.
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Related: trading (this site).
Frequently asked questions
How much cover should I get?
Start with what your client contracts require, then think about the largest loss a mistake in your work could realistically cause. A specialist broker can help you set the limit and explain whether it applies per claim or per year.
What does professional indemnity insurance cover?
It covers claims that your professional work or advice caused a client financial loss, including mistakes, negligence, breach of duty and accidental IP infringement, plus your legal defence costs.
Is professional indemnity insurance a legal requirement?
Not for most businesses. It's required by regulators or professional bodies for professions such as solicitors, accountants in practice, surveyors and financial advisers, and many clients require it in contracts.
What's the difference between professional indemnity and public liability insurance?
Professional indemnity covers financial loss caused by your work or advice. Public liability covers injury to people or damage to their property.
Is professional indemnity the same as errors and omissions insurance?
Broadly, yes. Errors and omissions, or professional liability, is the common US name for the same type of cover.
What happens to my cover if I stop trading?
Because most policies are claims-made, cover ends when the policy ends. Run-off cover protects you against claims about past work after you stop trading.
