What is professional indemnity insurance?
Professional indemnity insurance is a type of business insurance that can help protect you if a client claims your professional services caused them a financial loss. It focuses on professional mistakes, professional negligence, or errors in the advice you provide.
Depending on the industry, this coverage is sometimes called professional liability insurance or errors and omissions (E&O) insurance. While the naming varies, the purpose is similar: helping protect professionals against claims tied to their work.
What can professional indemnity cover?
Professional indemnity insurance can help protect your business from the legal defense costs of claims related to professional mistakes, oversights or negligence — whether the claims are valid or not — up to your policy limits. Depending on your policy, it may also help cover settlements or judgments tied to covered claims.
Here are a few examples of what professional indemnity insurance may help cover:
- Missed filing deadlines that cause a client financial loss.**
- Incorrect advice or errors in your professional work that cost a client money.
- Defamation, libel or slander claims related to your work.
- Intellectual property disputes involving original content or designs made for a client.
- Inaccurate reports, estimates or deliverables that led to a client losing money.
- Alleged negligence related to your professional services (even if you disagree).
Even if the claim has no merit, professional indemnity insurance could help cover legal fees, court costs and settlements.
Quick example: A client asks a business consultant to deliver a financial forecast. The client claims it had errors and they lost money as a result. Even though you believe your work was solid, the client is still upset enough to drag you to court. A professional indemnity policy could help with legal defense costs while the claim is investigated.
How does business indemnity insurance work?
When you file a covered claim, depending on the situation, your professional indemnity insurance policy may help cover legal defense costs, settlements or judgments up to your policy limits.
Many professional indemnity policies are claims-made, which means the policy needs to be active when the claim is filed. That’s one reason a lot of professionals keep coverage even when they’re between projects.
When reviewing a policy, you should be sure to understand:
- Policy limits: The maximum amount the policy could pay for covered claims.
- Deductibles: What you may pay out of pocket before coverage applies.
- Covered services: The types of professional work included in your policy.
- Exclusions: Situations that the policy won’t cover.
How much does professional indemnity insurance cost?
Professional indemnity insurance rates can vary based on your business type, industry risk, and coverage needs. Here are a few factors that can affect your premium:
- Your profession. Some industries face more risk than others. For example, accountants and consultants may have higher coverage needs than graphic designers or tutors.
- Where you do business. Location can influence legal costs and claim patterns.
- Business size and revenue. Larger businesses or those with more clients may pay more.
- Coverage limits and deductible. Higher limits and lower deductibles typically increase your premium — but they also provide more financial protection.
- Claims history. If you’ve had insurance claims filed against you in the past, that could raise your rates.
- The type of work you do and your contracts. Work that involves high budgets, strict deadlines or regulated industries may affect pricing.
TIP: To get a realistic estimate, it helps to know what limits your clients typically require. And when you’re comparing quotes, make sure you’re comparing the same limits and policy terms — not just the monthly price.
The best way to know your business’ exact cost for professional liability insurance or your cost for E&O insurance is to start a free, no-obligation quote.
How much business indemnity insurance coverage do you need?
It depends on your client contracts, the size of your project and how costly a mistake could be. When choosing coverage limits, consider:
- Contract requirements (many clients specify a minimum limit)
- The size of the deal (bigger budgets often mean bigger claims)
- How many clients you work with at once
- Whether you want a higher deductible to lower your premium
What’s usually excluded from professional indemnity coverage?
Business indemnity insurance covers a lot, but it doesn’t cover every risk your business may face. Here are some common exclusions:
- Bodily injury or property damage. Claims involving accidental physical harm to customers or damage to someone else’s property are not usually covered by professional indemnity. General liability insurance can be helpful in these instances.
- Employee injuries. Injuries to your own employees are generally covered by workers’ compensation insurance.
- Cyberattacks and data breaches. If your business handles sensitive client information such as financial data, health information or personal data, you may benefit from cyber liability coverage, an add-on to general liability or professional liability/E&O.
- Contractual liabilities. If you agree to take on extra risk in a contract (beyond what’s typical for your profession), it might not be covered unless you’ve arranged for additional contractual liability coverage.
- Prior acts or known issues. If you knew the work would likely lead to a claim, it may be excluded.
- Intentional wrongdoing or fraud. If you deliberately mislead a client or break the law, those actions usually aren’t covered.
Which types of businesses could benefit from professional indemnity insurance most?
If your business provides services, expert advice or professional recommendations, it’s likely you could benefit from professional indemnity insurance. Even when you do everything right, a client might still claim your work caused them financial harm.
This type of insurance can be especially useful for self-employed professionals and business consultants who are paid for their expertise or advice. In some fields, indemnity insurance can be required by law or client contracts.
In some industries, state licensing boards or client contracts require proof of professional indemnity coverage before work begins.
Some professions that often carry professional indemnity insurance include:
If your advice, analysis or deliverables help clients make decisions or run their business, there’s always some risk that things don’t go as planned — and you could get blamed. This is especially true when your work influences budgets, compliance or timelines.
What’s the difference between liability insurance and professional indemnity insurance?
While these terms are sometimes used interchangeably, professional indemnity insurance and general liability insurance are designed to address different types of risk.
- Professional indemnity insurance can help protect businesses against claims of financial loss tied to alleged or actual professional mistakes, negligence or errors in your professional services. These claims typically involve advice, reports or designs — the deliverables you offer.
- General liability insurance can help protect your business if you’re responsible for someone else’s bodily injury or property damage. These claims usually involve physical or tangible losses.
Insurance companies separate these policies so businesses can choose coverage that aligns with their specific risks — whether those risks involve physical injuries, property damage or financial loss tied to professional services.
Why does professional indemnity have two different names?
In the United States, this coverage is more commonly referred to as professional liability insurance or errors and omissions (E&O) insurance. In other parts of the world, such as the United Kingdom and Australia, it’s typically called professional indemnity insurance.
While the terminology varies by industry and region, the coverage concept is similar — helping protect professionals from legal claims tied to their work.
In healthcare and the legal field, this type of coverage is typically called malpractice insurance (medical malpractice and legal malpractice), but it generally serves a similar purpose to help protect professionals from claims related to alleged mistakes in their services.
