Running a business inherently carries a level of risk. Despite having good intentions, mistakes and oversights can occur. Hence, this may open your business up to significant levels of legal liability. Professional indemnity insurance ensures your business is protected from a worst-case scenario. Read on to find out whether this insurance is compulsory for your business.
What is Professional Indemnity Insurance?
Professional indemnity insurance protects businesses that provide professional advice or services to clients. It can cover claims made against your business by customers and third parties. Depending on the level of coverage, your policy may cover legal fees, damages, and costs associated with investigations.
This insurance is important for many businesses as errors, mistakes, and omissions can occur. For example, a personal trainer at a gym may provide a customer with poor advice about different exercises. This customer may then sustain an injury when following this advice. Consequently, This would then open the gym up to a claim. Without insurance, the gym would have to pay the costs from the claim out of their own pocket. As such, insurance is necessary to ensure you avoid significant financial consequences.
Professional Indemnity Insurance v. Public Liability Insurance
Professional indemnity insurance is sometimes confused for public liability insurance. The distinction here is who they target. Public liability insurance targets businesses that interact with the general public in the course of their operations. For example, restaurants and bars frequently take out public liability insurance. This insurance will also protect against claims made against the business for injury or damage to property.
What Does it Cover?
Generally, professional indemnity insurance will cover claims for:
- Breach of duty
- Breach of contract
- Defamation
- Damages for dishonest and negligent actions of employees
- Slander
- Breach of consumer law
However, there are also claims that generally won’t be covered. These may include illegal conduct, intentional damage, and employee injuries. Therefore, it is important to review each policy to ensure you have the necessary coverage for your business.
Do I Need It?
The short answer is it depends. This insurance is mandatory for some professions in Australia. This is because these professions are fairly high-risk and mistakes can have serious consequences. Some professions that require professional indemnity insurance include:
- Legal practitioners
- Medical practitioners
- Architects
- Real estate agents
- Tax agents
Accordingly, a condition of membership to a professional body may be proof of this insurance. Professions requiring registration may also call for this insurance. Some examples include accountants and alternative health practitioners. It is also important to note that the level of coverage required may change between industries.
Selecting the Best Policy
Moreover, there are many insurance providers who offer professional indemnity insurance. However, it can be difficult to navigate which provider and policy is best suited to the needs of your business. Similarly, it is often a balancing act between the level of coverage and cost. To help you make this decision you may want to consider:
- Is my business legally required to take out this type of insurance?
- What can potentially go wrong in my line of work?
- How much coverage do I need?
- In the event of a lawsuit, how much money can I pay out of pocket?
- How much risk am I willing to take on?
Therefore, it is important to understand the nature of your industry and any legal requirements surrounding your business operations. Professional indemnity insurance is often a great way to protect your business and ensure peace of mind.
