Professional Indemnity Insurance Explained

March 10, 2012
/ Blogging
/ By Jacob A Irwin

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The following is a guest post. Enjoy!

Professional Indemnity Insurance Explained

Business owners purchase Professional Indemnity Insurance (PI) in order to protect themselves from losses due to claims from third parties. There are several types of policy and they can be tailor made for the type of business they will be protecting. There are three main types; errors and omissions, malpractice and professional indemnity itself, and although they offer similar coverage and protection, they are geared toward different industries. For example, malpractice insurance is tailored for the medical profession and will protect against damages claims filed by clients and patients whereas errors and omissions (E&O) will cover mistakes (omissions) and errors that may lead to financial losses for clients. This is commonly purchased by professionals like lawyers, architects and web designers. Professional indemnity is the most broadly purchased policy and will cover damages and financial losses by a third party.

Insurance companies will take over the responsibility for paying settlements both in and out of court, up to the policy limit – and any legal fees will also be paid.

Premium amounts will differ from business to business depending on the risk assessment. Applicants considered to be higher risk will pay higher premium prices and these can also be affected by the coverage amount selected by the applicant.

“Run-off” coverage can be added to the policy plan so that the professional is still covered when the business closes, or they decide to retire. This is due to third parties being able to sue years after the incident occurs, or even when the business has been closed for years. Run-off will provide protection in these circumstances.

If a professional decides against taking out an indemnity insurance policy, they will be responsible for paying any settlement fees out of pocket, as well as their own legal fees and perhaps that of the offended third party. This can run to thousands of pounds and in some cases, could affect the future of the business.

How about you all? If you are a business owner, do you have business insurance and/or professional indemnity insurance? Why or why not?

Share your experiences by commenting below!

Jacob’s Thoughts – Listed below are my random thoughts as I was reading this article.

Personally, I have zero experience dealing with business insurance, so I cannot comment too much on the points in this article.
Overall, I think that having business insurance is a very good idea for most business owners.
However, before blindly deciding to take on this added insurance, you should make sure that the nature of your business warrants the need for this added protection and expense item.
For example, for my sole proprietorship that I have set up for my blog, I don’t believe there is very great of a need for business insurance since 1) I don’t have a separate physical office away from my home that needs to be protected, 2) have no employees to look after, and 3) I do not provide physical goods or services to customers/clients that I could be sued over if something went wrong.
Sure – there still exists the minute risk of me being sued for something like slander or using intellectual property without authorization, but there are many steps that can be easily taken to avoid/control these things. So, overall, I don’t feel that I need business insurance just yet.
However, if I had a business such as a doctor’s office or bakery, I would be much more apt to have a business insurance policy.

***Photo courtesy of http://www.public-domain-image.com/cache/people-public-domain-images-pictures/male-men-public-domain-images-pictures/employees-discuss-in-office_w725_h483.jpg

About the Author Jacob A Irwin

Hi folks! My name is Jacob. I am the owner and operator of My Personal Finance Journey. I started this blog in January of 2010 and have enjoyed the journey ever since. Since finishing up graduate school in Virginia in 2014, I have been working in biopharmaceutical development in Colorado. You can read more about me and this site here. Please contact me if you have any questions!

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