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What is Professional Indemnity Insurance?

Professional Indemnity Insurance is a type of business insurance, typically for organizations that provide consultation or any professional services to its clients. Professional indemnity insurance covers claims made by the businesses in case their clients have sued them for making them endure any significant financial loss due to their advices and services.

Professional indemnity insurance is also known as professional liability insurance and also as errors & omissions (E&O) in the United States. It is a type of liability insurance that works to protect businesses and individuals who provide consultation and services with the compensation for full and hefty costs arising from the loss that they have caused to their client. The coverage provided by the insurance company focuses on the alleged failure of the service delivery by the company, which has led to the financial loss due to errors and omissions in the service or consultation.

The insurance company handles the confidential data of its clients and their intellectual property to analyze before it provides consultation and required services. Keeping in mind the confidentiality of such information, it becomes very important for a business to take up professional indemnity insurance or professional liability insurance.

Some companies seek business with consultation and service providers demand that the individuals or businesses need to be covered by professional indemnity insurance. This is in order to lower the risk of not getting compensated for the losses caused by the business during the tenure of their service. Some individuals or organizations that need to have such insurance are accountants, financial advisors, healthcare professionals, solicitors, architects, chartered surveyors, etc.

Most organizations decide to take up professional indemnity insurance keeping in mind their own protection against coughing up a large sum of money, in case they have caused their clients a huge loss due to their own mistakes and have to compensate for that amount.

It does not matter if you share a good business relationship or bond with your clients. A mistake that may lead to a financial loss will disrupt the peace between you. Therefore, it is very important to take up professional indemnity insurance for the protection.

When will the Policy Cover?

This insurance policy is based on the claims that are made. It means that the professional indemnity insurance policy will only cover the claims that are made during the tenure of the policy. So, make sure you get your renewals done on time. Also, any financial loss due to a false advice, the negligence, or the faulty analyses will only be covered if those mistakes were made during the tenure of the insurance policy. Claims made before or after the period of the policy will not be covered.

What is the Retro - Active Date in a Professional Indemnity Insurance?

Some insurance companies have a retro - active date. The retro - active date is a period or number of days before the actual or date of inception of the professional indemnity insurance policy. They might cover the claims made during the policy tenure but the event or incident that caused the significant financial loss happened before the period. So, events happened during the retro - active period could be claimed if the claim is made during the tenure of the insurance policy. Mistakes are inevitable can happen anytime in any business. Professional indemnity insurance will be there to protect like by carrying the burden of the monetary compensation that is to be given to the clients by the organization. Such a policy is taken up by the following businesses and individuals –

  • Consultants
  • Brokers
  • Agents
  • Notaries public
  • Brokers from real estate
  • Architects
  • Insurance agents
  • Landscape architects
  • Appraisers
  • Management consultants
  • Third - party business administrators
  • IT - Information technology service providers
  • Attorneys
  • Quality control specialists
  • Engineers
  • Non - destructive testing analysts

There are also some specific errors and omissions policies designed for software developers, website developers, home inspectors, etc.

What is Civil Indemnity Insurance?

Some insurance policies cover more than the basic coverage. The professional indemnity or liability insurance will not cover defamation, slander, libel, any breach of contract, the breach of warranty, intellectual property, any personal injury sustained, security, the cost of contract, etc. However, the civil indemnity insurance policy will provide coverage for all these aspects under the “civil liability” cover. The employer’s liability and public liability are some of the exclusions from the list of things.

Tail Reporting Coverage

Tail reporting coverage, also known as extended reporting endorsements cover, is a type of insurance that covers the incidents that occurred within the tenure of the indemnity insurance but was not reported until the termination of the policy. Extended coverage is offered by some insurance companies if the insurance policy remains non-renewed for that time. Of course, the extended coverage gives rise to the premium, which has to be paid if the tail reporting coverage needs to be used for claims.

How can you Do Dates transfer?

There is coverage called “prior acts” or “nose’, which transfers the retro-active date from an old policy to a new professional indemnity insurance policy. This transfer eliminates the need of purchasing a tail cover. The ‘prior acts’ cover is comparatively less expensive than the tail cover.

Professional Indemnity Insurance - The Perfect Risk Management Tool

The professional indemnity insurance policy is one of the best risk management tools available for businesses, as there is no better way than having an insurance policy pay off your debts or the money you owe to your client. Negligence and mistakes not only cost you your clients but also cost you a fortune. Professional indemnity insurance or a professional liability insurance policy helps manage your business and losses better without having to be sued or legally accused of major financial losses, which might lead to the fall of your entire business or your client’s entire business.

If you do not have professional indemnity insurance, you would either have to pay an amount equal to your client’s loss from you pockets, which might lead to the fall of the business or make the company bank corrupt or might have to face legal actions taken by your client because of to the mistakes you made.

Professional Reputation

In case you client faces a major loss and you have professional indemnity insurance, you might be able to convince your client to settle down with the payment and not make it a legal issue. It surely is an easy way out and has positive long-term impacts. It surely protects your professional reputation as an organization and leaves the window of opportunity for other clients to approach you.


The professional indemnity insurance protects you against any legal actions or threats, which a client, to whom you have caused a major loss because of your mistakes or ill advices, might press on you. It also saves you from paying a hefty amount of money as compensation to the clients for their losses. The policy also protects you by saving your professional image in public and among other existing and potential clients. Having this policy helps you manage your risks while leaving space for improvement by continuing the consultation and services to keep you in business. Get the professional indemnity or liability insurance and save your business and yourself from the embarrassment of failure due to significant amounts of losses to your clients.