Professional Liability Insurance
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Professional indemnity insurance

Professional indemnity insurance, also called professional liability insurance, protects you in the event that a client seeks legal action against you, claiming errors, mistakes, or negligence. 

What is professional indemnity insurance?

As a small business owner, you do your best to provide high-quality customer service. Unfortunately, mistakes happen. Professional indemnity insurance protects your business from the financial losses associated with legal action taken against your small business.

If a client or customer sues your business claiming you or one of your employees made a significant error that negatively impacted them, you'll want to be protected by professional indemnity insurance.

Indemnity insurance is suitable for all small businesses, but it is particularly useful for businesses that primarily sell industry expertise and knowledge rather than physical products. Examples of these industries include IT consultants, real estate agents, and public relations professionals.

Some states require professional indemnity insurance for specific industries. Some professions, such as lawyers, may not be required to carry indemnity insurance in all states, but they often do need to disclose to their clients if they are not currently insured for liability.

Professional indemnity insurance is also called professional liability insuranceerrors and omissions insurance, or simply PI insurance. For healthcare workers, it is often called medical malpractice insurance.

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What does professional indemnity insurance cover?

Professional indemnity insurance covers the expenses associated with legal action taken against your business for mistakes related to the professional services provided. These covered expenses include:

  • Court fees
  • Fines
  • Lawyer's costs
  • Legal fees
  • Judgments and settlements

It should be noted that professional indemnity insurance will only cover up to your policy limit. If a lawsuit costs more than your policy covers, your business will need to cover the rest.

Claims protected by professional indemnity insurance include:

Professional negligence

Small businesses, especially ones that market their skills and expertise in a field, are often held to high professional expectations. The failure to fully handle a task with quality care and consideration is called "professional negligence." 

Claims of negligence can harm a company's reputation (not to mention cost a ton in legal expenses), so it's essential to have great representation provided by your PI insurance policy. 

Breach of contract

When working with clients, there is typically an expectation of services to be rendered. This is often solidified by a formal contract that is signed and agreed upon by both parties. Failing to meet the expectations set by this contract can be considered a breach of contract and could be taken to court.

Oversights and errors

Errors are a normal part of life, but errors in the workplace can have potentially damaging (and expensive) consequences. Your client may sue if an oversight was significant enough to warrant legal action.

Breach of confidentiality

Mishandling of information is unfortunate, but it gets even more harrowing when the information is classified, confidential, or protected intellectual property. Your business might land in hot water if a client has reason to believe their confidential information was disclosed without consent. 

Poor professional advice

A client may feel like the advice or guidance they received from your small business was so detrimental that they lost income or suffered some other kind of loss. They may feel like there has been some misrepresentation of expertise or skill. 

Why do you need professional indemnity insurance?

No matter how careful you try to be, human error is inevitable. The out-of-pocket costs associated with legal action can be expensive. Even if your company did nothing wrong, defending yourself against legal action is often stressful and costly.

Having the right professional indemnity insurance policy can protect your business in the event that an unsatisfied customer tries to sue you or an employee for errors or mistakes. Professional indemnity liability insurance covers the necessary legal fees, fines, and attorney costs so you (and your business) don't have to. 

How much does professional indemnity insurance cost?

A small business owner calculating their professional liability costs

The cost of professional indemnity insurance is, on average, $61 per month. 32% of Insureon's small business policyholders pay less than $50 per month for their policy.

Your cost is based on a few factors, including:

  • Industry and risks
  • Coverage limits and deductible
  • Business size
  • Day-to-day operations
  • Claims history

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What does professional indemnity insurance not cover?

Professional indemnity insurance covers most costs associated with protecting your business against legal action. However, it does have limits. 

For example, professional indemnity insurance does not cover you if you decide to take legal action against a client. It only protects your business should a client or customer sue your business.

Other exclusions include:

Workplace injuries

If a customer or third party sustains a bodily injury during the course of a business day, you will need a general liability insurance policy.

Business property damage

If your rented or owned business property gets damaged or stolen, you'll need commercial property insurance


If you or your business gets sued for libel or defamation, you'll likely need a general liability insurance policy, even if the matter is taken to court. 

To fully protect your small business, it's critical to have an active policy with your insurance company before an issue arises. If someone brings legal action against your business and the event occurred before your retroactive date (meaning, the date your policy started), it won't be covered by your insurance company.

What is the difference between professional indemnity and public liability insurance?

Public liability insurance helps cover costs in the event that someone (a customer, vendor, or any other non-employee) suffers an injury, accident, or death resulting from your business.

This type of general liability insurance is often purchased alongside business property insurance in a bundle known as a business owner's policy (BOP). These two policies cover a multitude of risks for many types of small businesses and are highly recommended as the basic minimum insurance needed for most self-employed people and small businesses (for those businesses that qualify). 

A professional indemnity policy is different from a public liability policy because indemnity insurance only covers legal fees related to a variety of errors and mistakes, while public liability insurance covers medical expenses, repairs, and injury-specific legal costs. 

Both can cover court fees and related expenses, but these types of insurance coverage cannot be used interchangeably because they cover different types of risk.

Get professional indemnity insurance quotes with Insureon

Get the right coverage today to protect your business against lawsuits and legal action. Speak to one of our licensed insurance agents, who can help you select the best professional indemnity policy for your needs from the nation's top insurance providers.

Updated: March 18, 2024

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