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Real Estate Professional Indemnity Insurance

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Real Estate Indemnity Insurance

Professional Indemnity Insurance for Real Estate

Real estate professional indemnity insurance, sometimes just called professional indemnity insurance, is a type of insurance for real estate professionals in New Zealand. This insurance protects professionals against potential legal costs and claims for damages that might arise from an act, omission, or breach of professional duty in the course of their work.

Why is real estate PI important?

It provides a safety net for professionals. If someone believes you’ve made a mistake, given poor advice, or have been negligent in your real estate duties and they suffer a loss, they might claim against you. This insurance covers the financial consequences of such claims, ensuring that your business isn’t heavily impacted.

Professional indemnity cover is a necessary component of your business risk management, its affordability makes it a wise investment. In New Zealand, the average cost of professional indemnity insurance for real estate typically ranges between NZ$100 – $200 per month. 

It’s crucial to have real estate PI coverage if your business:

  • Offers property advice or valuations
  • Manages property portfolios
  • Handles real estate transactions
  • Is involved in property leasing

What does real estate professional indemnity insurance cover?

Real Estate Indemnity Insurance provides cover for errors or omissions resulting in financial loss to a third party. This includes:

Legal costs

This includes the cost of defending your real estate business against a claim, whether the claim is valid or not. If a client alleges that your advice or service led to their financial loss and takes legal action, these costs can quickly escalate. Real Estate Indemnity insurance can cover the expenses related to legal proceedings, such as lawyer fees, court costs, and potential settlement fees.

Breach of Professional Duty

If you fail to meet the standards of the real estate industry and a client suffers a loss as a result, this type of insurance can cover you. For instance, if you're a real estate agent and you fail to follow disclosure obligations when selling a property, leading to a significant financial loss for the client, your professional indemnity insurance can step in to cover the costs associated with the claim.

Negligence

This covers errors or oversights in your real estate work. If you accidentally provide incorrect real estate advice to a client that leads to a financial loss, your policy can cover the legal costs and potential compensation you might have to pay.

How much does real estate indemnity insurance cost?

Real estate professional indemnity premiums are calculated on several different factors including:

  • Limit of cover
  • Type of industry
  • Number of employees 
  • Turnover 

Real estate indemnity insurance in NZ typically costs between $100 to $200 per month. 

Who needs real estate professional indemnity insurance?

Any individual or business involved in the real estate sector in New Zealand can benefit from this insurance. This includes real estate agents, property managers, valuation professionals, and others offering real estate advice or services.

Yes, regardless of your business size, if you offer real estate advice or services, you should consider PI insurance. Even small mistakes can lead to significant claims, and the associated costs can have severe consequences for small businesses or sole traders.

The premium is typically based on factors such as the nature of the services you provide, the size of your business, the amount of coverage you want, your claims history, and other relevant details.

How do I get proof of real estate professional indemnity insurance?

You can usually get proof of real estate indemnity insurance same day when you purchase insurance through Gerrards.

Acquiring a real estate professional indemnity certificate from traditional insurance brokers may require a few weeks, a delay that could create problems for people or businesses who need instant insurance proof.

To obtain insurance coverage promptly, contact us. We may require you to provide some fundamental details about your business, such as:

  • The name of your business
  • The nature of your business activities
  • The total number of employees
  • Predicted annual income
  • Years of experience in the industry
  • Qualifications

What does real estate professional indemnity insurance not cover?

PI Insurance generally does not cover:

Known Claims and Circumstances

If you were aware of a real estate claim or a circumstance that could lead to a claim before the inception of your policy, and you did not disclose it to your insurer, your policy might not cover it.

Fraudulent, Dishonest, and Criminal Acts

PI insurance does not cover any claims arising from deliberate, dishonest, or criminal actions.

Bodily Injury or Property Damage

Real estate professional indemnity insurance is not designed to cover physical injury to a person or damage to property. These would typically be covered under Public Liability Insurance.

Claims from Insolvency or Bankruptcy

If your business becomes insolvent or bankrupt, real estate indemnity insurance generally won’t cover claims related to these financial issues.

Other common questions about real estate indemnity insurance

‘Claims-made’ policies cover claims that are made during the policy period, regardless of when the incident causing the claim occurred. In contrast, ‘occurrence’ policies cover real estate incidents that occur during the policy period, even if the claim is made after the policy has expired.

The amount of coverage you need depends on the nature and size of your real estate business, the potential risks you face, and the requirements of your professional body or clients. Most small business opt for $1 million or $2 million worth of cover. This amount is highly specific on your specific risks so it’s best to discuss this with an experienced broker real estate insurance broker to ensure you have the right amount of coverage.

Run-off cover is a feature of real estate indemnity insurance that continues to provide coverage for claims made against you after your business has ceased trading or you have retired. This is particularly important in professions where claims can arise long after the actual service or advice was provided.

For instance, imagine you’re an real estate agent who sells a house, then retires a year later. Five years after your retirement, an undisclosed fault with the house becomes apparent and causes substantial damages. Even though you’re retired, if you had taken out run-off cover as part of your professional indemnity insurance, you would still be protected against this claim.

Run-off cover is crucial because many professional indemnity insurance policies operate on a ‘claims made’ basis, meaning the policy that responds is the one in effect when the claim is made, not when the incident occurred. Therefore, maintaining some form of coverage even after ceasing to practice can protect against late-arriving claims.

In New Zealand, the premiums for Real Estate Professional Indemnity Insurance are typically tax-deductible as a business expense. However, it’s best to consult with a tax professional to understand the specifics based on your circumstances.

Yes, Real Estate PI insurance can cover past work as long as the claim is made during the active policy period, there was no knowledge of the potential claim when you purchased the policy and the retroactive date was before the incident the claim arose from.

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