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Professional Indemnity (PI) Insurance Explained

At your place of business you want everything to go smoothly. You want to your clients to get the most out of your company and in return you want their return custom. Occasionally there are situations that arise where a client of yours may hold you liable for a piece of advice you have given that have caused them financial loss. Professional indemnity insurance protects you and your company against instances like that.

Who is a potential candidate for this type of policy?

Financial professionals rely on professional indemnity insurance to be able to operate their business. Accountants, financial planners, private bankers, web designers, marketers, medical professionals and more, all require professional indemnity insurance to ensure that they are protected and are not bankrupted by any legal action caused by their advice. Many other professionals can also take out a policy e.g. Architects and Designers, Consultants, Engineers, Finance and Mortgage Brokers, Home Insulation Safety Auditors and Home Sustainability Assessors, IT Professionals, Nurses, Real Estate Agents, Recruitment Consultants and many more.

As professional indemnity claims may arise from any situation where a client loses money as a result of a professional mistake, professional indemnity insurance is also recommended to a whole number of other industries. Architects, engineers, graphic designers or anyone that takes a fee for service and delivers a product that a client relies upon is a candidate for professional indemnity insurance.

What typically does a professional indemnity insurance policy cover?

Professional indemnity insurance basically insures you against your skill. Some clients may have made a financial loss from you services to them. PI covers you for any legal costs that may arise from the client filing a lawsuit against you. You are also covered for any potential compensation in the event of losing the lawsuit.

What typically does a professional indemnity insurance policy not cover?

Many indemnity claims come some time (many years even) after you have provided the service to your client. As professional indemnity policies expire when they are cancelled you may not be covered if the claim is made after you cancel the policy even though you may have retired already. You may have to keep your policy current for several years after you retire.

This same issue also arises if you switch insurers. If you switch insurers and someone makes a claim against you from a time you were with your old company, your new company will not protect you. You old company will also not protect you as your cover will have expired. Be mindful of this when switching companies and ask your new insurer what provisions they have in the event of this occurring.

Additional coverage that policy holders might take out in this area

Business cover is an extra safety net that you can utilize in the event of a claim as it will provide extra legal cover. Public liability policies will also cover you in the event of an injury to a member of the public at your place of business resulting from negligence. This may be very useful if you have a great number of employees or numerous work premises you cannot specifically monitor on a day-to-day basis.

Additional coverage for a PI policy

As mentioned earlier, PI cover may only come into play many years after an incident has occurred. Because of this you may want to ensure you are still covered for liability even after you retire as you want to be covered in the event of any legal action.

What will this type of policy typically cost?

PI cover is usually determined by a percentage of your company's total legal spend. The size of the percentage is wholly dependant on your industry and the likelihood your company will be taken to court and the insurer you choose to go with. Insurance rates for this type of product usually range from 0.5% of your total cover to 1%.

Where Can I find Professional Indemnity Insurers?

You can find a wide selection of PI brokers and agents at www.professionalindemnityinsurance.net.au

Please note that this is not an exhaustive list of all available PI insurers in the marketplace.

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