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Professional Indemnity Insurance
A Professional indemnity insurance policy will typically provide cover for in the event you need to pay to correct a mistake or cover any legal costs due to your professional negligence i.e. such as giving incorrect advice or making a mistake in your work.
If you provide advice to your clients or provide a professional service there is always the threat of an unhappy client who may wish to claim against you for negligence arising from some professional function or service you performed for them.
You should also be aware that if you are responsible for handling data belonging to a client or business or are responsible for a client’s intellectual property then you may also be labile for any loss or damage resulting from a failure to handle or secure that data / property properly.
What limit of professional indemnity do I need?
Choosing a professional indemnity insurance limit depends on your firm's circumstances. If you need PI insurance for a specific contract, it's likely the client will have specified a minimum amount. This is often the case for industry bodies too, so check before arranging cover.
Otherwise, consider a worst case scenario if you were to make a mistake in a piece of work for a client, and estimate the cost of putting it right. Remember to take into consideration any legal fees and losses that could be incurred by your client as a result of the error.
Is professional indemnity insurance mandatory?
Many industry bodies require PI insurance - accountants, architects and solicitors to name but a few. Professionals working on a contract basis - such as management consultants, business consultants and IT contractors - will almost certainly need PI insurance in order to be awarded a contract.
Remember though, if you are not legally obliged to have PI insurance, without it you could have to pay thousands of pounds in compensation and legal fees to defend a claim. This would be in addition to the opportunity cost of time spent defending the allegations.
No matter how large or small a business, without PI cover you could be left vulnerable if a claim is brought against you. Knowing that adequate insurance is in force gives you peace of mind that you and your business is covered.