When you take out a professional indemnity insurance policy, you will be asked to choose your level of cover. And you might wonder: How much professional indemnity insurance do I need?
In this post we will outline the key considerations that will help you determine what level of professional indemnity insurance is right for you.
What Does Professional Indemnity Insurance Cover?
If you provide specialist services, then professional indemnity insurance will cover you and your clients for any financial losses that may occur as a result of your work.
Most professional indemnity insurance policies will cover claims involving:
- Negligence and dishonesty
- Breach of duty of care
- Breach of intellectual property rights
- Data loss
- Breach of confidence
- Defamation and libel
How to Calculate What Level of Professional Indemnity Insurance You Need
There are a number of key considerations that will help you determine how much professional indemnity insurance you should get, including:
- The services you provide
- The sector you work in
- How much your contracts are worth
- Legal requirements
- Type of Professional Indemnity Policy
Below we will outline each of these considerations and how they can affect what level of professional indemnity insurance you need.
What Services Do You Provide?
The services you provide, and the possible risks associated with them, are known as your liability.
Think about what could go wrong, and about how much it would take to fix any issues. But bear in mind that professional indemnity insurance needs to cover legal fees alongside the costs of correcting any issues.
Also consider your turnover. If you work for a large number of smaller clients, then you may be more likely to face a claim than a professional who only manages a handful of clients. But if you do work with a small number of high-value clients, then the potential cost of any claim could be higher.
What Sector Do You Work In?
Some sectors are more tightly regulated than others, which often means that any potential mistakes can be a lot more costly. If you are working in the financial or IT sector, for example, you will likely need more professional indemnity insurance than someone working in graphic design.
Also think about the type of clients you work with. Small businesses may hesitate to make a claim should something go wrong. But large multinational companies will have dedicated legal departments and teams of corporate lawyers. If they feel they have a cause to make a claim against you, then they absolutely will. And their legal fees will not be cheap.
How Much Are Your Contracts Worth?
Consider the average value of your contracts, projects, and fees. Also think about your clients’ expectations. As a result of using your services, are they expecting to cut costs, or boost their revenue?
When it comes to professional indemnity insurance claims, the cost of the claim will rarely be the same as the amount your client paid you. As we outlined above, you may also be liable to pay legal fees. But beyond this, your client may claim for their total loss. In some industries, this can result in a six figure claim.
Do You Have a Legal Requirement to Have Professional Indemnity Insurance?
In some industries, there may be a legal or regulatory requirement to get a certain level of professional indemnity insurance. Accountants, for example, need professional indemnity insurance as a condition of their ACCA membership.
Also, certain clients may implement a contractual requirement to get a certain level of professional indemnity insurance.
What Type of Professional Indemnity Insurance Policy Is It?
Professional indemnity insurance policies can either provide cover “in the aggregate” or for “any one claim”:
- In the aggregate: This means that the policy’s cover limit will apply to all claims made against you in the policy period.
- Any one claim: This means that you will have the same policy cover limit for an unlimited number of claims in the policy period.
For example, say you take out £300,000 professional indemnity insurance cover. A client makes a claim against you, resulting in £200,000 of costs. Your policy will cover you for these costs, no matter what type of policy you have.
But what happens if you face more than one claim in the same policy period? If you have an aggregate policy, then you may not have enough to cover you for any subsequent claims. But if you have an any one claim policy, you will have £300,000 worth of cover for every possible claim you face in the policy period.
So, check whether the policy will be in the aggregate, or for any one claim. If it is in the aggregate, and you work in a high-risk industry with high-value contracts, then you may need more professional indemnity insurance cover than you think.
What Level of Professional Indemnity Insurance Do I Need?
In short, you should get as much professional indemnity insurance as you can afford. This is particularly important if you work in a regulated sector, with high value contracts, or with large multinational companies.
Remember that your professional indemnity insurance must cover your client’s legal fees as well as their losses. And remember that you may have to pay for a client’s total loss, and not just the amount they paid you.
Get Advice on Your Insurance Requirements from our Friendly Team
If you are still unsure as to what level of professional indemnity insurance you need, we are here to help. We can advise you on your cover requirements, and we can help you get the cover you need at a competitive price.