Professional indemnity insurance is a legal requirement in many industries.
If your business provides a professional service or advice then there is a chance of human error or a disgruntled client - Professional indemity insurance can help you when you are on the receiving end of a lawsuit.
How much does professional indemnity insurance cost?
That's tough to say. It'll depend on a few different factors including the type of work you do, your annual revenue, and the level of cover you'd like.
We put every effort into ensuring information on Finder is accurate. This article was reviewed by Justine McLean from our Editorial Review Board as part of our fact checking process.
In 2021, we requested three different quotes from five different insurers, to get a picture of how much professional indemnity insurance might cost for a self-employed tax agent with $150,000 annual revenue. Here's what we found:
Professional indemnity is designed to protect you and your business if you ever make a mistake at work and the client sues. It'll also protect you if you didn't make the mistake, but you have an unhappy client who claims you did. But it won't protect against everything.
Covered
Breach of duty. You fail to lodge a client's important paperwork in time.
Breach of privacy or confidentiality. You accidentally share a customer's personal information online.
Defamation, libel or slander. You publish something online which damages a person's reputation.
Intellectual property infringement. You accidentally breach copyright laws in a design you give to a client.
Legal fees. The legal costs of investigating, defending and settling claims.
Reputation repair. Public relations costs deigned to repair your reputation if it's damaged.
Loss or damage to documents. A tax agency is severely damaged along with receipts given by clients.
Not Covered
Issues known prior to insurance. You receive a complaint from a customer then take out cover
Criminal conduct. You use your client's information to open a credit card.
Damage to property. You visit a client's home and accidentally break something.
Intentional acts. You use below-standard materials for a house you are working on.
Fraud and dishonesty. You claim to have qualifications that you do not.
Fines and penalties. If you are ordered to pay a fine, this is unlikely to be covered.
Bankruptcy. If your business goes bankrupt, your policy won't cover related claims.
Accidental injury. You construct a faulty wall which ends up collapsing on someone.
Key factors that will affect your quote
Professional indemnity insurance isn't one-size-fits-all. Lots of different factors are taken into account when calculating the price you pay. They include:
Number of staff. The more staff employed at your company, the higher your premium will be. That's because as the number of employees grows, so does the chance of human error.
Annual turnover. Businesses with a lower annual turnover will enjoy lower premiums. That's because you face less financial risk than others.
Type of client. If you work on large-scale, multi-million dollar projects, your premiums will be higher than if your clientele is on the lower end of the spectrum.
Industry. Certain industries carry higher premiums as the potential cost of mistakes is higher. For example, a lawyer would face higher premiums than a graphic designer.
Claims history. Have you been sued before? If so, you'll likely face higher premiums than someone who hasn't.
Benefits. Not all policies are created equal. A more comprehensive level of cover will cost you more money.
Excess. The excess is the amount you pay first, if you ever have to claim. The higher the excess, the lower your monthly premiums.
Do I actually need professional indemnity insurance?
In some cases, yes.
Professional indemnity insurance is a legal requirement in many industries. These vary between states so it's worth double checking.
Professional indemnity insurance is typically a basic requirement in business contracts, especially if you are dealing with other companies or councils.
Professional associations and industry bodies often require their members to have professional indemnity insurance.
Some industries require professionals to have professional indemnity insurance before they receive full accreditation.
Even if you don't technically need professional indemnity insurance, it's still a good idea to consider it.
No matter how careful you are, there is always the risk of error. Further, illegitimate claims can also end up costing you a lot of money, not to mention your reputation.
Professional indemnity insurance ensures your business can continue to operate despite having to cover legal costs.
Case studies for specific occupations
Here are some real life examples of professional indemnity insurance claims:
Accountant
An accountant advised their client that an expense was tax-deductible. The ATO investigated the claim and fined the client. The accountant was liable to pay legal fees to defend the claim and pay compensation to the client. Having professional indemnity insurance ensured those costs were covered.
Building inspector
A building inspector completed a pre-purchase report for a client buying a new house. It was later found that there was significant structural damage in the roof that was not identified in the report. The client sued the building inspector for damages. The building inspector's expenses were covered by their PI insurance policy.
Event manager
An event coordinator double-booked a room at a function centre, resulting in the cancellation of one of the events. The client whose event was cancelled made a claim seeking damages for lost business and to recoup expenses. The events coordinator was able to cover these costs because they had a PI policy in place.
Why price isn't everything
We understand that price is important - but it shouldn't be the only factor you look at when choosing professional indemnity insurance. Keep an eye out for insurers that:
Understand your industry and manage policies of other similar businesses.
Can produce evidence of favourable outcomes for clients
Are approved by your industry's governing body or membership association
Have clear policy guidelines regarding inclusions and exclusions
Take a personal approach and assess your business specifically
It is important to get a number of quotes and talk to a variety of insurers before committing to any particular policy.
Some important things to understand
When looking for professional indemnity insurance, you'll come across some terms you might not have heard of before. We've cleared them up for you here.
Term
What it means
Claims made
If you switch insurers after the event occurs, but the claim is made under a new insurer, the new insurer must handle the claim.
Run-off cover
Run off cover extends the policy after you have stopped trading. For example, if someone makes a claim after you've sold your business or retired.
Fidelity insurance
An additional cover that protects you against dishonest acts by employees. It can be taken out as a separate policy or included as an extension.
Policy retroactive date
The date from which your professional indemnity insurer will cover you. Typically, the retroactive date will either be unlimited or specified.
An unlimited retroactive date means the insurer will cover claims regardless of when they occurred. A specific retroactive date will only offer cover after a specific date.
Cost inclusive
Legal defence costs are included in the maximum amount your insurer will pay for a claim.
Cost exclusive
Legal defence costs are covered in addition to the limit of indemnity, which means it could be a more desirable option.
Talk to a broker about professional indemnity insurance
Professional indemnity insurance is complicated. Fill out the form below, to receive free advice from a broker.
Frequently asked questions
Professional indemnity insurance, sometimes called professional liability insurance, is designed to cover the potential costs that can come from workplace mistakes - or alleged mistakes - for self-employed people and businesses.
For example, if you survey a house and tell the prospective buyers that it's sound, but they later discover it has major structural faults, they may sue. Your professional indemnity insurance would help cover the costs of that court case.
Professional indemnity insurance can also protect you against unfair claims. For example, if a client falsely accuses you of shoddy work. Your policy would cover the cost of investigation, legal fees, and even the cost of defending your reputation.
That's another tricky one. Some industries set a mandatory minimum, but others don't.
The best way to figure out exactly how much cover you need is to talk to a broker or a financial advisor. They'll be able to help you pinpoint which policy might be best, and what level of cover is appropriate for your business.
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To make sure you get accurate and helpful information, this guide has been reviewed by Justine Mclean, a member of Finder's Editorial Review Board.
Alex Reid is Finder’s business insurance cadet. He has a Master of Marketing from the University of Technology Sydney, with a background in business and sales. When not writing about business insurance for Finder he's a keen scuba diver, recently completed his 200th hour underwater and his PADI Divemaster certification. Before working at Finder he lived in Hangzhou China, where he studied Mandarin and Chinese culture. See full bio
Why do accountants need professional indemnity insurance? Why do they need public liability insurance? This article looks at the many risks that accountants are exposed to in the course of doing business and will hopefully convince every accountant who reads it that PI Insurance is not something they can afford to be without.
Nursing is a vital profession in hospitals and nursing homes around Australia, but the people who work as nurses are exposed to a unique range of risks. If a nurse were to make a mistake or an error of judgement — for example administer the wrong medication, fail to follow a doctor’s instructions or give incorrect advice to a patient — they could find themselves the subject of a lawsuit for a breach of their professional duty.
This is where professional indemnity insurance shows its worth. This type of cover offers much-needed financial protection for nurses against claims of negligence or malpractice. It covers the cost of your legal defence as well as any compensation you may be legally required to pay to a third party. Public relations costs to repair your professional image are also covered by professional indemnity policies.
In order to find the right professional indemnity insurance policy for you, compare policies at finder.com.au and seek advice from colleagues. Compare quotes from a number of insurers and seek help from an insurance consultant if required.
I will be working as an aircraft engineer on night shift and will be moving there for the job. Am i eligible for Professional Indemnity Insurance
Finder
MarcJanuary 3, 2014Finder
Hello Saravanan,
thanks for the question.
Personal indemnity insurance is offered on a case-by-case basis. Getting insured will depend on how you’re employed and the nature of the role. There are specialist providers who insure aviation workers so be sure to do a quick internet search and compare these providers.
I hope this helps,
Marc.
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I will be working as an aircraft engineer on night shift and will be moving there for the job. Am i eligible for Professional Indemnity Insurance
Hello Saravanan,
thanks for the question.
Personal indemnity insurance is offered on a case-by-case basis. Getting insured will depend on how you’re employed and the nature of the role. There are specialist providers who insure aviation workers so be sure to do a quick internet search and compare these providers.
I hope this helps,
Marc.