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Indemnity Insurance

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What is an indemnity insurance policy?

Indemnity Insurance Definition

Indemnity insurance, also known as professional indemnity insurance or errors and omissions insurance, is a type of coverage that protects professionals and businesses from potential financial losses due to mistakes, negligence, or omissions.

Why might professionals or businesses consider indemnity insurance?

Financial Protection

It safeguards professionals and businesses from potentially significant financial losses that could arise due to unintentional errors, negligence, or omissions in their work.

Maintain Reputation

In the event of a mishap or oversight, having indemnity insurance demonstrates to clients and partners that a business is responsible and prepared, thereby boosting confidence and trust.

Legal Defense

Should a legal claim arise, indemnity insurance can assist with defense costs, preventing businesses from bearing these potentially hefty expenses on their own.

What does professional indemnity insurance typically cover?

Indemnity insurance offers coverage against claims made by clients or third parties who may have suffered financial losses due to a professional’s mistake, negligence, or oversight. This can include:

  • Breach of professional duty or care.
  • Inadvertent sharing of confidential information.
  • Defamation or libel claims.
  • Claims of misrepresentation or misleading advice.
  • Specific industry-related errors or omissions.

How does indemnity insurance operate?

Once a policy is in place, if a claim is filed against the insured due to an alleged or actual oversight, mistake, or negligence, the insurance company can provide legal defense and, if required, compensation up to the policy’s specified limits. The process typically involves:

  • Reporting the potential claim to the insurer.
  • The insurer assessing the claim’s validity.
  • If valid, the insurer can provide legal defense or work towards a settlement.
  • The insurer may compensate the claimant up to the agreed coverage limits.

What are the advantages and disadvantages of indemnity insurance?

When deciding on indemnity insurance it’s essential to weigh the pros and cons:

  • Peace of Mind: Knowing potential errors won’t lead to immense financial strain.
  • Professional Image: Demonstrates responsibility to clients and partners.
  • Coverage: Protection from potentially substantial financial losses due to claims.
  • Legal Assistance: Can provide valuable legal expertise in the face of a claim.
  • Cost: Premiums can be a significant business expense, especially for higher-risk professions.
  • Policy Limits: Coverage limits might not always cover the full extent of a claim.
  • Potential for Misunderstandings: Not all scenarios may be covered, leading to gaps in protection.

Are there common misunderstandings about indemnity insurance?

  • Not an All-Inclusive Coverage: Some believe it covers all forms of negligence, which isn’t always true.
  • Immediate Coverage Misconception: Some think it covers past work immediately upon buying, without recognizing the need for retroactive dates.
  • Only for Large Companies: A misconception is that only large enterprises need this insurance, but even small businesses can face claims.

Why is indemnity insurance important? 

  • It offers a safety net against unforeseen financial claims.
  • Enhances trust and credibility with clients.
  • It enables businesses to operate confidently, knowing they’re protected against potential legal and financial pitfalls.
  • Keeps businesses compliant with industry regulations or standards that may mandate such coverage.

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