Professional indemnity insurance

Also called PI insurance, PII, Errors and omissions

Cover for claims that your advice or work caused someone a financial loss.

What it means

Professional indemnity insurance covers legal costs and damages where a client alleges that your professional service, advice or design caused them loss.

It is distinct from public liability, which covers injury and property damage to third parties, and from employers' liability, which covers your own staff.

Why it matters

It is mandatory for some regulated professions and a contractual requirement in a great many commercial and public sector contracts, often at a specified level.

Most policies are written on a claims-made basis: the policy that responds is the one in force when the claim is made, not when the work was done. That has a consequence people miss — stopping cover after you retire or sell leaves past work uninsured.

What it looks like in practice

Match the level of cover to what your contracts require and to the size of loss your work could plausibly cause, not to your fee.

If you cease trading or change insurer, consider run-off cover for past work.

Tell your insurer about circumstances that might give rise to a claim, promptly. Late notification is a common reason cover is declined.

What to watch out for

Indemnity clauses in contracts that assume liabilities your policy does not cover. Check the wording against the contract before signing.

Aggregate limits, where one large claim exhausts the year's cover.

Exclusions for work outside the described activities. If your business has changed, the policy description should too.

Where to get proper advice

A broker who understands your sector, and your professional body, which often has a scheme. Read the policy wording rather than the summary.