Of all the questions we're asked, ‘how much professional indemnity insurance should I have?’ is the biggest head-scratcher.
Why? Because rather inconveniently, there isn’t a one-size-fits-all way to work out your professional indemnity insurance level of cover definitively.
Even more inconveniently, getting the answer wrong – and we don’t want to be melodramatic here – could spell disaster.
If that sounds less than helpful it’s really not meant to be: being underinsured could be as devastating as not being insured at all.
And if we assume that the rule ‘if it can go wrong, it will’ always applies, it makes sense to protect your business with as much cover as you can get.
What's the minimum professional indemnity insurance level of cover I need?
If we were really pushed for a figure, we'd say don’t go for less than £250,000. Ideally, choose £1m if possible.
But (and it’s a big but) times are hard and budget restraints often mean a compromise. So where do you start?
When evaluating what level of cover you need, bear these three things in mind:
- What you’re doing.
- Who you’re doing it for.
- How much it’s worth.
Try not to think of your insurance as set in stone either. Your level of cover can vary from contract to contract as each job changes.
Caveat: be wary of reducing your level of cover – it changes the policy retrospectively too. You should always think about the work you’ve done and consider whether your insurance is still enough to pick up claims arising from past contracts.
Most claims come from work you’ve already completed and they’ll be subject to the level of cover you have now; not what you had when the work was done.
So, let’s look at those three points in more detail.
Key factors for working out your professional indemnity insurance level of cover
What you’re doing
What exactly is your client asking you to do? What could go wrong? What could you be liable for and what would it cost to put right?
The level of cover you choose should be enough to meet the cost of all losses your client faces if you make a mistake. Insurers always look at worst-case scenario when underwriting a policy and you should do the same.
Who you’re doing it for
We’re generalising here but, as a rule, bigger clients have more money.
As the little guy, you’re an easy target for their team of ruthless solicitors. If something does go wrong, big companies tend to sue first and ask questions later. In our experience, they’ll try to pin as much as they can on you and won’t be fazed by the prospect of opening their wallet to do so.
So make sure your level of cover is enough to fend off expensive-looking claims from expensive-looking solicitors.
How much it’s worth
Contrary to popular belief, you can be sued for any loss your client (or their solicitor) thinks is your fault. Limiting your liability by contract makes little difference. If a court deems you’re liable for more, you’ll have to pay it.
If your work is part of a larger project and your client alleges that your mistake has delayed or disrupted that too, they’ll sue you for their total loss. It’s worth bearing in mind that many projects, particularly those involving HR, IT or construction, can cost £millions.
So there we go. Choosing your professional indemnity insurance level of cover isn't an exact science but we hope we've helped a little.
If you’re still not sure what's right for you, we recommend talking to a specialist before you buy. We’re here to help if you need us - just call 0345 333 5391.
Or, if you’re already clear about what you need, getting your quote is the easy bit. Click here and away you go.
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