The only two insurance covers required by law in the UK are motor third party liability and employers’ liability insurance. Any other insurance need is driven by either industry regulations or business owners’ desire to protect their livelihood.
Which professions benefit from professional indemnity insurance?
Professional indemnity insurance is a legal protection cover designed for companies which are in the business of providing professional services that include advice.
There are many examples in many different sectors:
- Medical - doctors, nurses, dentists
- Construction - architects, builders
- Legal - solicitors, barristers
- Financial - accountants, brokers, investment advisers
- Technology - project managers, IT consultants
- Marketing - advertising agencies, PR companies
- Sport & fitness - instructors, coaches
The list could go on. Some of these professions are often required to hold professional indemnity insurance in order to become a member of a regulatory body. Without such a membership they cannot carry out any business activities within their chosen industry.
Other businesses which have no such requirement might still choose to buy PI cover because it is a smart move in order to protect their reputation and bank balance against the risk of a legal claim from a dissatisfied customer.
Typical demands from unhappy clients are refunds, more work delivered at no charge, and in some cases financial compensation if the work or actions of your company is deemed have caused a financial hardship to your client.
When does my limited company need professional indemnity insurance?
The moment you take on the first client contract, you should have professional indemnity insurance in place. While mistakes are rarely discovered so early during a project, it is important that your PI cover starts before any client work commences.
Mistakes can transpire at any time but more often than not it is either on delivery of a client project or some time after. For your professional indemnity insurance to be of any use to you, should you find yourself in hot water with a client, the start or at least the retroactive date of your PI cover must fall on or before the commencement of the project in question and your PI cover must be still active when the accusation is made against you.
Sometimes business owners in order to save money cancel their professional indemnity insurance when client work is finished or new work has slowed down. However, you can only make a claim if you have an active PI policy.
My limited company has stopped trading. Do I still need PI insurance?
Whether your company has stopped trading in the interim or indefinitely, you might wish to consider to have a professional indemnity run off cover in place.
As mentioned above, mistakes are sometimes discovered with a delay. Professional indemnity run off cover insures you against claims made as a result of your past work. This type of policy is usually purchased by businesses that have temporarily ceased trading or decided to close.
A run off cover is usually a cheaper option as it’s only covering the past. When purchasing a run off cover, ensure that the retroactive date goes back far enough to a sufficient number of years.