Is professional indemnity insurance compulsory?

What is professional indemnity insurance?

It’s a type of insurance that protects you and your business in the event you are successfully sued by a client because your recommendations, advice, or professional services caused them financial loss.

Does my business need professional indemnity insurance?

It depends on the type of work you do.

If you provide professional services, such as designs, specifications, advice, or instructions, professional indemnity insurance can provide additional insurance protection for your business.

The types of businesses that may need cover typically include architects and lawyers. However, it can also apply to businesses in the construction industry, such as tradespeople.

Why would my business need cover?

If you don’t have cover and are sued for carrying out negligent work, you and your business (depending on how your business is structured) will have to pay the costs of any compensation ordered by the court, as well as legal fees.

These costs can be substantial. The amounts owed can potentially cripple a business or force it into bankruptcy. Your insurance is there to protect you by paying the compensation and fees on your behalf.

Is professional indemnity insurance compulsory?

For some businesses, such as lawyers, accountants, financial advisors, and architects, it is a legal requirement to have professional indemnity insurance.

For most trades, it is not a legal requirement. However, you may still need it.

Many professional bodies and trade associations may require you to have insurance to be a member.

You may also find that some clients insist you have professional indemnity insurance as a part of the contract with you. This would mean being in breach of contract if you don’t have appropriate cover or fail to renew a policy.

What happens if I don’t have professional indemnity insurance?

If you are not legally required to be insured, you cannot be fined for not having it (some professions like solictors cannot trade without it). However, the financial consequences of not having cover can be devastating if a customer seeks compensation from you for negligent work. It can also harm your reputation as a reputable trader, who takes their responsibilities seriously.