In this article, we will be discussing professional indemnity insurance. But first, let’s discuss some terms.
What is insurance and how does it work?
Insurance is a tool for risk management. When you purchase insurance, you are purchasing protection against unforeseen financial losses. If something unpleasant happens to you, the insurance company pays you or someone else of your choosing. If you don’t have insurance and an accident occurs, you could be liable for all expenses.
Insurance policies are frequently in effect for a predetermined amount of time. This is also known as the policy phrase. You must either renew the policy or purchase a new one at the conclusion of that period. For several types of insurance policies, you select a beneficiary, or the person you wish to receive the policy’s benefits or payments.
One of your responsibilities when purchasing an insurance policy is to pay a charge known as a premium. Like health insurance, some premiums are paid on a monthly basis.
Others, like vehicle or homeowner’s insurance, could be paid just once or twice a year. Your level of risk to the insurance provider will generally determine how much your premium will cost.
It’s a good idea to research insurance before purchasing it. Make sure that any insurance provider you are considering using is reputable and financially stable by doing research on them. Additionally, learn what matters so that you may acquire the coverage you require at the lowest possible cost.
What is indemnity?
Indemnity refers to security or defense against a monetary liability. It often takes the form of a binding contract between two parties, wherein one party promises to make good on losses or other damages sustained by the other party.
According to contract law, indemnity is the obligation of one party to make up for any loss suffered by the other party as a result of the indemnitor’s or another party’s actions. The contractual obligation to “keep harmless” or “save harmless” is frequently, but not always, coextensive with the duty to indemnify.
An insurance contract serves as the most prevalent example of indemnity in the financial sense. For instance, in the case of home insurance, homeowners pay an insurance company for coverage in exchange for being compensated in the event of the worst-case scenario.
Now that we have briefly looked at insurance and indemnity, one may ask, what is professional indemnity insurance?
What is professional indemnity insurance?
You are protected by professional indemnity insurance from lawsuits filed by clients or other parties alleging loss or harm as a result of negligent services or advice you gave.
Even if you provide a service or advice for free, you could still face compensation claims.
Typically, professional indemnity insurance is provided based on the filing of claims. This means that only claims made against you while your policy is in effect will be covered by your insurer.
You will not be protected if a claim is made against you after it has expired. That is, even if the occurrence occurred while your insurance was in effect.
For instance, if a customer files a claim against you in 2021, after your coverage has ended, for an incident that happened in 2019 while you had professional indemnity insurance, your insurer will not pay the claim.
You should think about getting a run-off policy if you decide to terminate your professional indemnity insurance, for instance, if you are retiring or changing careers. This protects you from any fresh claims made against you following the expiration of your professional indemnity insurance.
Your run-off insurance should protect you during this time. This is because new claims may be made against you for up to six years. That is, following the alleged occurrence of a negligent act.
A run-off insurance policy will shield you from further claims for mishaps that happened. That is, while you were with your previous insurer if you are switching insurers. Alternately, your new insurer might agree to pay for claims stemming from earlier mishaps.
Check to see if your new insurer will pay for claims stemming from prior events, or inquire about purchasing a run-off policy.
Where to shop for professional indemnity insurance
Through the British Insurance Brokers’ Association, you can purchase professional indemnity insurance directly from an insurer or from a specialized broker (BIBA). Your line of work will determine how much coverage you require and how much your premium will be.
Some regulatory agencies and professional organizations demand that their members have insurance coverage for a specific minimum. For instance, professional indemnity insurance must be in the range of 2 million to 3 million for any single claim brought against a solicitor.
Ask your clients how much insurance they anticipate you having if you are not a member of a professional organization.
What is the difference between public liability and professional indemnity insurance?
Public liability insurance is designed to cover claims from members of the public for accidents, illnesses, or property damage. Professional indemnity insurance protects claims from clients for professional errors or carelessness.
Do I need public liability and professional indemnity insurance?
For various reasons, public liability and professional indemnity can both be viewed as beneficial. Although neither is required by law, obtaining public liability and/or professional indemnity insurance can give you the assurance that your company is protected in the event of a claim. Without sufficient protection, you run the risk of bearing the full financial burden of any legal actions and settlement payments.
Public liability insurance may be thought of as a smart choice to safeguard your company in the event of an accident if you frequently deal with customers or consumers as well as suppliers.
On the other hand, professional indemnity insurance covers claims for all types of professional errors or negligence and may be useful in all industries.
Conclusion
If you run a business, you might be held responsible for any harm your enterprise causes to another person or piece of property. In addition, if you give professional assistance or advice, you may be accused of negligence or breach of duty.
In the current economic climate, the threat of pending lawsuits and claims is extremely real and has the potential to bankrupt both small and large enterprises. Even though you might believe “it will never happen to me,” unexpected events frequently lead to legal action.
Professional indemnity insurance defends you and your company from accusations of negligence or breach of duty resulting from a professional service provider’s conduct, omission, or mistake.