Legal Guide

A Guide to Professional Indemnity (PI) Insurance

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Chances are if you are a business owner or a professional of some sort, you’ve heard about professional indemnity insurance.

Purchasing this type of insurance is an important part of safely running a business, minimizing the risks, and covering any potential errors. It is also a large and fast-growing sector of commercial insurance. As a result, numerous companies are constantly expanding, upgrading, and diversifying their offers in this highly active and competitive market.

If professional indemnity insurance has piqued your interest for any reason, you want to be fully informed to make a proper decision and choose the right policy.

This simple guide will explain everything you need to know about PI insurance.

What is PI insurance?

First of all, let’s establish what Professional Indemnity (PI) insurance (or professional liability insurance) actually is.

This type of insurance policies mostly cover breach of professional duty, civil liabilities, breach of contract, and professional error, negligence or omissions.

Professionals tend to be vulnerable to risks and personal losses (some more than others), so this policy provides much-needed financial protection. Meaning, it protects the person or the company so they can conduct their business without the fear of being sued and suffering any significant financial losses.

Who needs PI insurance and why?

Today, the term ‘professional’ is a rather wide one but we can define it as a person or a company that offers specialized advice or service.

As this broad term implies, many businesses big and small can benefit from the protection that PI insurance provides.

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Some professionals such as certain medical experts, architects, solicitors, accountants, financial advisors, etc are required to obtain this insurance. Others make a personal choice to protect their business.

A lot of small businesses are still reluctant to consider the insurance of this sort. However, that is starting to change because they realize that anyone who is offering any kind of professional service can benefit from getting PI insurance.

It is a good investment as this insurance is there to make sure you don’t lose your livelihood, your business or your reputation due to an error.

Costs and calculations

The cost of the PI insurance can vary, depending on different factors such as:

  • the type of profession
  • annual turnover
  • the size of the business
  • the claims history, etc.

By adding and calculating these factors, professions can be seen as high or low risk. Naturally, high risks professions fetch a higher insurance price than the low risk ones. This means that rates can vary, usually going from 0.25% to 5%, although it can go higher or lower than that.

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Of course, it also depends on where your business is located. For example, Professional Indemnity (PI) insurance UAE can offer different terms than in some other countries. The policies can also differ on a more local level.

Another important factor is the current state of the market. To stay on top of the competition, insurance companies can change and adjust their offers. Being determined by the insurance company itself, minimum premiums can vary significantly.

The legal aspect

Getting PI insurance is not a legal requirement. However,  as mention previously, some sectors and professions are required to have some sort of PI insurance. Not having it would be a disciplinary offence that could result in steep fines and in certain cases the company could be forced to shut down completely.

For the ever-growing list of unregulated services rules are different. They are not obligated (for now at least) to carry PI insurance. But, it would be a good idea to invest in it, making sure the company is properly protected from any potential liability.

What isn’t covered by PI insurance?

There are undeniably some limitations to PI insurance policies. Even though the offers, premiums,  and costs vary, there are certain aspects that this particular type of insurance will not cover.

Here are the main things that are not covered:

  • employers’ liability
  • products liability
  • insolvency or bankruptcy
  • vehicle insurance matters
  • bodily injuries
  • financial losses caused by war, pollution, or radioactive contamination.

Take note: In the case of a successful claim, there is a so-called Limit of Indemnity - a financial limit that the policy will pay out.

The importance of PI insurance

The main benefit of PI insurance is, of course, financial protection in case of mistakes, negligence, various liabilities, undesirable outcomes, etc. It can also cover legal expenses in the event of a lawsuit.

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True, the PI insurance has its limitations. There are certain aspects that evade the cover provided by the insurance. There simply isn’t an all-around policy that would suit absolutely every circumstance.

However, by observing the whole picture, it becomes clear that the benefits of this type of insurance outweigh the shortcomings. Just by assessing the financial damage in a worst-case scenario and potential legal fees, it becomes clear that purchasing PI insurance is a smart decision, both professionally and financially.

In conclusion

Having peace of mind when it comes to liability could provide you with an opportunity to focus on other things, growing and expanding your business and perfecting your profession without fear.

And by getting familiar with different aspects of PI insurance, you are equipped to make the decision that is best for your business.

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