Does your business provide a professional service or advice? If so, there's always the chance of human error or a disgruntled client. This can leave you on the receiving end of a lawsuit - whether it's your fault or not. Professional indemnity insurance will help if that happens.
Professional indemnity insurance is tailored to your business. You can either get quotes online or enter your details to receive a call back from a broker.
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Professional indemnity insurance, sometimes called professional liability insurance, is designed to cover the potential costs that can come from workplace mistakes - or alleged mistakes - for self-employed people and businesses.
For example, if you survey a house and tell the prospective buyers that it's sound, but they later discover it has major structural faults, they may sue. Your professional indemnity insurance would help cover the costs of that court case.
Professional indemnity insurance can also protect you against unfair claims. For example, if a client falsely accuses you of shoddy work. Your policy would cover the cost of investigation, legal fees, and even the cost of defending your reputation.
That's tough to say. It'll depend on a few different factors including the type of work you do, your annual revenue, and the level of cover you'd like.
In February 2021, we requested three different quotes from five different insurers, to get a picture of how much professional indemnity insurance might cost for a self-employed tax agent with $150,000 annual revenue. Here's what we found:
| AIG | $644.38 | $649.05 | $994.35 | $1,000 |
| Berkley | $361.21 | $361.21 | $691.92 | $0 |
| DUAL | $479.31 | $479.31 | $644.44 | $1,000 |
| QBE | $327.75 | $415.24 | $619.38 | $1,000 |
| Vero | $389.20 | $411.07 | $498.57 | $0 |
| Average | $440.37 | $463.18 | $689.78 | $600 |
Data was taken from our quoting engine.
That's another tricky one. Some industries set a mandatory minimum, but others don't.
The best way to figure out exactly how much cover you need is to talk to a broker or a financial advisor. They'll be able to help you pinpoint which policy might be best, and what level of cover is appropriate for your business.
Professional indemnity insurance is complicated. Fill out the form below, to receive free advice from a broker.
If you are ready to speak with a consultant about different business insurance options available, simply enter your details in the form. Keep reading if you want to learn more about the different types of cover available.
Professional indemnity is designed to protect you and your business if you ever make a mistake at work and the client sues. It'll also protect you if you didn't make the mistake, but you have an unhappy client who claims you did. But it won't protect against everything.
| Breach of duty | You fail to lodge a client's important paperwork in time |
| Breach of privacy or confidentiality | You accidentally share a customer's personal information online |
| Defamation, libel or slander | You publish something online which damages a person's reputation |
| Intellectual property infringement | You accidentally breach copyright laws in a design you give to a client |
| Legal fees | The legal costs of investigating, defending and settling claims |
| Reputation repair | Public relations costs deigned to repair your reputation if it's damaged |
| Loss or damage to documents | A tax agency is severely damaged along with receipts given by clients |
What is NOT covered
| Issues known prior to insurance | You receive a complaint from a customer then take out cover |
| Criminal conduct | You use your client's information to open a credit card |
| Damage to property | You visit a client's home and accidentally break something |
| Intentional acts | You use below-standard materials for a house you are working on |
| Fraud and dishonesty | You claim to have qualifications that you do not |
| Fines and penalties | If you are ordered to pay a fine, this is unlikely to be covered |
| Bankruptcy | If your business goes bankrupt, your policy won't cover related claims |
| Accidental injury | You a construct a faulty wall which ends up collapsing on someone |
Professional indemnity insurance isn't one-size-fits-all. Lots of different factors are taken into account when calculating the price you pay. They include:
- Number of staff. The more staff employed at your company, the higher your premium will be. That's because as the number of employees grows, so does the chance of human error.
- Annual turnover. Businesses with a lower annual turnover will enjoy lower premiums. That's because you face less financial risk than others.
- Type of client. If you work on large-scale, multi-million dollar projects, your premiums will be higher than if your clientele is on the lower end of the spectrum.
- Industry. Certain industries carry higher premiums as the potential cost of mistakes is higher. For example, a lawyer would face higher premiums than a graphic designer.
- Claims history. Have you been sued before? If so, you'll likely face higher premiums than someone who hasn't.
- Benefits. Not all policies are created equal. A more comprehensive level of cover will cost you more money.
- Excess. The excess is the amount you pay first, if you ever have to claim. The higher the excess, the lower your monthly premiums.
When looking for professional indemnity insurance, you'll come across some terms you might not have heard of before. We've cleared them up for you here.
| Claims made | If you switch insurers after the event occurs, but the claim is made under a new insurer, the new insurer must handle the claim. |
| Run-off cover | Run off cover extends the policy after you have stopped trading. For example, if someone makes a claim after you've sold your business or retired. |
| Fidelity insurance | An additional cover that protects you against dishonest acts by employees. It can be taken out as a separate policy or included as an extension. |
| Policy retroactive date | The date from which your professional indemnity insurer will cover you. Typically, the retroactive date will either be unlimited or specified. An unlimited retroactive date means the insurer will cover claims regardless of when they occurred. A specific retroactive date will only offer cover after a specific date. |
| Cost inclusive | Legal defence costs are included in the maximum amount your insurer will pay for a claim. |
| Cost exclusive | Legal defence costs are covered in addition to the limit of indemnity, which means it could be a more desirable option. |
In some cases, yes.
- Professional indemnity insurance is a legal requirement in many industries. These vary between states so it's worth double checking.
- Professional indemnity insurance is typically a basic requirement in business contracts, especially if you are dealing with other companies or councils.
- Professional associations and industry bodies often require their members to have professional indemnity insurance.
- Some industries require professionals to have professional indemnity insurance before they receive full accreditation.
Even if you don't technically need professional indemnity insurance, it's still a good idea to consider it.
No matter how careful you are, there is always the risk of error. Further, illegitimate claims can also end up costing you a lot of money, not to mention your reputation.
Professional indemnity insurance ensures your business can continue to operate despite having to cover legal costs.
Here are some real life examples of professional indemnity insurance claims:
Accountant
An accountant advised their client that an expense was tax-deductible. The ATO investigated the claim and fined the client. The accountant was liable to pay legal fees to defend the claim and pay compensation to the client. Having professional indemnity insurance ensured those costs were covered.
Building inspector
A building inspector completed a pre-purchase report for a client buying a new house. It was later found that there was significant structural damage in the roof that was not identified in the report. The client sued the building inspector for damages. The building inspector's expenses were covered by their PI insurance policy.
Event manager
An event coordinator double-booked a room at a function centre, resulting in the cancellation of one of the events. The client whose event was cancelled made a claim seeking damages for lost business and to recoup expenses. The events coordinator was able to cover these costs because they had a PI policy in place.
We understand that price is important - but it shouldn't be the only factor you look at when choosing professional indemnity insurance. Keep an eye out for insurers that:
- Understand your industry and manage policies of other similar businesses.
- Can produce evidence of favourable outcomes for clients
- Are approved by your industry's governing body or membership association
- Have clear policy guidelines regarding inclusions and exclusions
- Take a personal approach and assess your business specifically
It is important to get a number of quotes and talk to a variety of insurers before committing to any particular policy.
How much does business insurance usually cost?
Hi Adam,
Thanks for leaving a question on finder.
As with most types of protective insurance, the cost for cover to be taken out can vary dramatically depending on the insured’s cover needs. In the case of professional indemnity insurance, this will depend on whether the policy is for a sole trader or for a business looking to provide cover for a significant number of employees. While sole traders may be able to get adequate cover for just a few hundred dollars, the cost of insuring a multinational company could run into the hundreds of thousands of dollars. Key factors that impact what you pay include:
– Number of staff employed by company and annual turnover. Sole traders or companies with say 15 employees won’t require the same level of cover as large-scale organisation.
– Types of clients that company/professional services. Professionals that work on large-scale,. multi-million dollar projects will require a higher level of cover than smaller firms.
– Industry. The nature of the service provided and the level of risk for claims being made will impact how much is paid for cover.
Policy inclusions and exclusions. Obviously more comprehensive protection packages with increased levels of cover will cost more than more basic policies.
– The cost of professional indemnity insurance is largely based on the percentage of your companies total legal spend and the likelihood of the company being taken to court. The insurer that you go with and the policy that you choose will also play a major role in the final cost of cover.
To get a professional, personalized advice about business insurance, I suggest you fill out the form above to speak to an insurance broker.
Cheers,
Joel
Regarding aged care and disability services, are cheaper premium payments possible under professional indemnity insurance if regular employee training is provided to staff?
Hi Christina,
Thanks for your inquiry.
Usually, if regular employee training is provided to the staff there is a possibility of lowering the premiums. In order to confirm this, you may have to contact your insurer.
Hope this information helped.
Cheers,
Arnold
I am establishing an online business that sells parenting resources and ebooks. I don’t have any qualifications as such but have developed my resources based on experience. Do I need professional indemnity insurance and/or products liability insurance?
thanks
Hello Allie,
Thank you for your inquiry.
As of the moment, recommending which cover to take is within the scope of a licensed insurance broker. You can leave your details on the “Enquiry Now” form so that you will be interviewed and assessed to know which type of covers suits your needs.
Hope this helps.
Cheers,
Jonathan
Can I cancel my policy if I wish at any time? And is there any cancellation fee prior to the termination date of a professional indemnity insurance?
Hi Laura,
Thanks for your question. finder.com.au is a comparison service and we are not permitted to provide our users with personalised financial advice. Generally, you are entitled to cancel your policy as soon as your insurer receives a written request from you to cancel the policy. Whether or not there is a cancellation fee will depend on your insurer, as there may be an administration fee applicable.
I hope this was helpful,
Richard
If I have Professional Indemnity Insurance but I work for a company, and a claim is made against me, would my employer be liable to pay any damages/compensation? And if so, does my insurance extend to cover them or do they need to have their own insurance?
Hi Elle,
Thanks for your question.
It will depend on what the claim is for and what your policy covers. It’s best to speak with your insurer directly on the claim and to know how to go through the process of a claim.
Alternatively, if you would like to speak with an advisor about your options, please enter your contact details into the form for professional indemnity insurance and a broker will be in touch.
I hope this was helpful,
Richard