You’ve put in the late nights and hard work, and your consulting firm or software development business is growing by leaps and bounds. You have business cards, a business website and your social media game is strong. You’ve dotted all the i’s and crossed all the t’s. What else could you need?
Consider this: professional indemnity insurance coverage. You insure your car, your home, your life; make sure you are protecting yourself against common lawsuit claims in your business with a professional indemnity insurance policy.
What Is Professional Indemnity Coverage?
Professional indemnity coverage is a type of liability insurance that protects business owners in service-related sectors against losses incurred by negligence claims and potential awarded damages in civil lawsuits. Just like doctors need medical malpractice insurance to protect themselves against lawsuits, other professionals should protect their businesses too.
This coverage is known by different names, such as:
Professional Liability Insurance
Errors & Omissions Insurance
Professional Indemnity Insurance
Professional Indemnity Cover
Why Do Consulting Firms and Software Businesses Need Indemnity Coverage?
If your business is in a service-oriented or advice-centric industry, you need professional indemnity coverage to protect you and your assets if a client makes a civil claim against you. No one wants to get sued, and hopefully it won’t happen to your business, but it’s better to be safe than sorry. Lawsuits are a possibility for every business owner, and getting indemnity coverage can help protect you from the worst-case scenarios.
Professional indemnity insurance helps protect against situations where a client believes that your business has caused them to suffer a financial loss or other financial problem, and they want you to help pay for the costs or damage that they have incurred. Your indemnity coverage can help pay damages in these types of civil lawsuits and could also help cover the legal costs of defending your business against the lawsuit.
Consulting firms and software businesses tend to face certain professional risks that might require indemnity coverage. For example, if you provide software to a client’s company and the software fails in a way that causes the client’s business to suffer a financial loss, the client might decide to file a lawsuit against your business. Or if a consulting firm offers inaccurate advice to a client or makes a serious mistake while managing a project for a client, and the client loses money or suffers harm as a result, the client might sue the consulting firm for damages.
Professional indemnity coverage can help protect the business from out-of-pocket costs for legal defense and can also help pay damages to the client.
A professional indemnity policy covers everything from the cost of defending against a claim to paying out potential damages awarded in a civil suit. Errors & Omissions insurance can help cover claims due to professional misjudgment, mistakes or negligence on the part of the business, even if not intentional. Professional indemnity policies cover things like negligence, inaccurate advice or misrepresentation. Any time your client suffers a financial loss because of your business’s mistake, your business might be vulnerable to a lawsuit. This type of business liability insurance can help protect you from having to pay big money in a court judgment or settlement.
What Is Not Covered by Professional Indemnity Insurance?
While indemnity insurance does cover losses sustained in a civil suit, this type of coverage does not cover criminal prosecution. Additionally, if a lawsuit is a result of unethical practices by your business or its employees, your professional indemnity coverage would not provide coverage.
Professional indemnity coverage does not cover any kind of bodily injury or property damage; this would require a general liability insurance policy or workers compensation coverage for injuries or illnesses sustained by employees on the job.
Individual indemnity policies will also have a variety of items and situations that are not covered, or that could require additional or different lines of insurance.
What Is the Cost of Professional Indemnity Insurance?
Cost depends on your industry, the size of your business and other factors. But for many small business owners or solo entrepreneurs, professional indemnity insurance might cost as little as $20 per month or a few hundred dollars per month. The cost of your policy will also depend on the amount of coverage you purchase; for example, you could start with a $1,000,000 policy and add on to it from there if you decide that you want additional coverage or riders to protect against specific risks or situations. As you add on additional liability coverage, the monthly cost will rise accordingly.
Most business owners are looking to minimize their overhead costs, and buying business liability insurance might not sound like fun. But if you choose not to buy professional indemnity insurance, you might be taking a big risk: in case of a bad situation with a client, you could end up getting sued for more money than you can afford to pay. Without professional indemnity coverage, your business is directly responsible for the expensive out-of-pocket costs of defending against a lawsuit.
While it is not against the law to opt out of a professional indemnity policy, you might regret not having coverage in place if a lawsuit comes your way. Fortunately, there are plenty of options to obtain a policy for your business.
Choosing the Right Professional Indemnity Insurance
You have a lot of choices to make when you start a business. Although professional indemnity coverage may not be the most exciting decision you make, it may very well be one of the more important ones. Financially protecting your business is one of the best ways to help yourself succeed. Paying out damages on a single lawsuit due to your unintentional negligence could break your small business.
Incfile partner CoverWallet offers several options for professional indemnity coverage amounts and affordable monthly payments that fit your business’s needs. It’s easy to sign up and get a quote, and they offer everything you need to keep your company protected. CoverWallet will help you understand what type of insurance you need in your industry and why you need it, and there is no commitment to buy once you get the quote. All of your policies can be conveniently managed online, making CoverWallet the perfect option for your small business.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.