Know Risk is a community education program designed by the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) to improve our understanding of insurance and how it relates to managing the many risks we all face in life.
Professional indemnity insurance for your small business
Covering yourself and your business
If you own your own small business, operate as a small trader or work as freelancer, then professional indemnity may be an insurance policy worth considering.
Why might it be relevant to me as a small business owner, sole trader or freelancer?
When you own your own business, operate as a sole trader or work as a freelancer, you are (usually) solely responsible for any legal implications arising from your work, and any contracts you sign as part of performing a professional service will usually stipulate that all legal liability resides with you.
In this day and age, litigation is becoming more and more common, and any claims against you, be they legitimate or unfounded, typically require significant funds to investigate, defend and settle. The damage to reputation can also take a financial toll.
While you may be confident in your abilities and have a proven track record of satisfactory performance, that doesn’t cancel out the possibility of legal action being taken against you.
Professional indemnity insurance may not be necessary for you, but it’s certainly worth doing some research, having a chat to people in similar industries and situations as yourself and then making an informed determination about whether it’s worth considering for you and your business operation.
What is it?
Professional indemnity insurance is all about litigation and helping to provide cover for any claims against you that relate to errors, omissions or acts by you in the course of your provision of professional services.
The types of claims for damages against you include, but are not limited to, the following:
- Personal injury
- Property damage
- Failure to meet the terms of a contract (e.g. failing to meet a deadline or achieve the specified result of a contract)
- Financial loss
- Dispensation of incorrect advice/information
What does it cover?
While policies vary among insurers, some typical elements of professional indemnity insurance cover include the following:
- The costs of investigating, legally defending or settling claims
- Costs associated with personal injury or property damage claims
- Civil liabilities — resulting from things like defamation, theft of intellectual property, copyright infringement, breach of contract duties, etc.
What doesn’t it cover?
What a professional indemnity insurance policy doesn’t cover will vary among insurers, but in general, the following are not typically covered:
- Intentional damage
- Claims relating to circumstances that were known prior to the inception of an insurance policy
How do I go about getting it?
You have a few options where professional indemnity insurance is concerned. You can purchase it as an individual policy or as part of a business pack insurance policy. If you belong to a professional industry association, some of those will also occasionally offer professional indemnity insurance specific to your industry, which can often be helpful given the nature of claims that arise in each particular industry will often vary.
As with any form of insurance, it’s best to seek professional advice, so contact a broker or insurance professional for more information.