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How Much Does Professional Indemnity Insurance Cost?
As a professional, your clients hold you to certain standards and expectations. It’s important they understand exactly what you intend to deliver for them – and that you meet these agreements. However, if a client perceived that their business was in some way damaged by your actual or alleged professional negligence, they could potentially sue you for damages.
Luckily, there is insurance for professionals to protect against incidents such as those described above. It’s called professional indemnity (PI) insurance and, in this article, we’ll help explain what it is, and the factors which can determine its cost.
Firstly, what is professional indemnity insurance?
Professional Indemnity (PI) insurance* is a form of protection for businesses that provide specialist services or professional advice. It is designed to help cover the cost of claims against your business for losses as a result of actual or alleged negligent acts or omissions in the provision of your professional service or advice. PI Insurance can also assist with the legal costs associated with responding to or managing claims which are covered by the policy.
In some cases it may even extend to PR expenses required to manage your reputation.
There are a range of professional indemnity insurance products on the market, which all vary slightly1. However, a typical policy will generally cover for:
- Breaches of engagement: If you didn’t meet the terms of your professional engagement, such as not delivering services within the promised time frame, or if you provided negligent advice to a client, you could be covered against the resulting claim and legal costs
- Mistakes that occur during service delivery: Even the most experienced professionals make mistakes. This insurance can cover you if something goes wrong, such as providing an incorrect forecast or analysis for a client
It’s important to review the policy wording and product disclosure statement for policy limitations and exclusions.
Factors which can affect the cost of professional indemnity insurance
Like every type of insurance, there’s no set cost for professional indemnity insurance, and your monthly premium can vary depending on a variety of factors.
So, how is cost calculated? There are a few key factors that can affect your policy price and understanding them can give you a better idea about what to expect. Let’s take a closer look at some of the biggest factors:
#1: The type and size of the business
If you’re an independent contractor, or you just look after a handful of employees, your insurance may cost less than someone with a multinational business or lots of employees. This is because larger firms tend to face more complex risk issues, and financial consequences are usually more significant.
#2: How much turnover the business makes
Your yearly revenue can play a part in determining the cost of professional indemnity insurance. Businesses that turn over a high value will likely have to pay more than smaller businesses that generate less revenue.
#3: The industry
Certain industries have benchmarks that dictate the level of cover that’s suitable (and in some cases are mandatory). When you apply for a professional indemnity policy, the insurance provider will assess your industry, your role, and the level of risks involved. They’ll also look at the estimated value of any claims made against you.
#4: Your claims history
Insurers will usually take your claims history into account when establishing a quote. If you have a previous history of making a claim, this could increase your premium.
How much professional indemnity cover do you need?
While some professionals aren’t given an option about the level of cover that’s required to operate, others do have a choice. You could ask yourself some of the following questions to start getting an idea of policy inclusions that may be relevant to you:
- Legal requirements: What are the legal requirements of my industry? Is there a minimum amount of cover I am obliged to take out?
- Size of liability: What type of contracts do I accept? Am I working with large or small-scale organisations and if something goes wrong, how much would I be liable for?
- Clients: Do my clients require me to have a specific level of cover?
- Damages: What are the maximum damages a client could claim if something went wrong due to my services?
- Employees: How many employees do I have?
What are the benefits of professional indemnity insurance?
Professional indemnity insurance was once reserved for particular industries, such as law, accountancy and healthcare. Nowadays, a much wider range of professionals consider professional indemnity insurance while it is even compulsory for certain occupations.
If it’s not mandatory for your occupation, it may still be worthwhile assessing whether it’s appropriate for you. Because, although you might do your best to deliver a high-standard of work to all your clients, mistakes can still happen.
These mistakes can cause financial loss or damage to your client which they could seek to claim from you, as well as hefty legal fees and could damage your reputation. Taking out professional indemnity insurance can provide you access to the funds needed to cover those fees, pay out compensation, and protect the name of your business – subject to the exclusions and limits of your individual policy.
In short, not having appropriate cover could cost your business, as well as its reputation.
Compare professional indemnity quotes with iSelect & BizCover
Professional indemnity can provide that much needed peace of mind when working for clients. With iSelect & BizCover you can easily compare business insurance policies online from a range of providers, and you can select the one which suits you.
* As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording or Product Disclosure Statement. The information set out above is general only and should not be relied upon as advice.
iSelect’s partnered with BizCover Pty Ltd (ABN 68 127 707 975: AFSL No.501769) to help you compare small business insurance policies. iSelect earns a commission from Bizcover for every policy sold through the website or contact centre. iSelect and BizCover do not compare all brands in the market, or all policies offered by all brands. iSelect does not arrange policies from the brands we compare for you directly, but iSelect will refer you to our trusted partner, Bizcover Pty Ltd who can.
Any advice provided by iSelect is of a general nature and does not take into account your objectives, financial situation or needs. You need to consider the appropriateness of any information or general advice iSelect gives you, having regard to your personal situation, before acting on iSelect’s advice or purchasing any product. You need to consider if the insurance product is suitable for you. Please read the Financial Services Guide before buying any insurance policy.