Professional indemnity insurance. Cover for the day a client says your advice cost them money.

Quick answerProfessional indemnity insurance covers the cost when a client claims your advice, design, report or professional service caused them a financial loss, through negligence, an error, an omission or advice that turned out to be wrong. It pays your legal defence costs and any damages or settlement, up to the limit of indemnity you choose. It is separate from public liability insurance, which only responds to physical injury or property damage.

At its core, professional indemnity insurance covers breach of professional duty: work that fell below the standard a reasonably competent person in your line of work would have delivered. That might be an accountant's advice that triggered a tax penalty, an engineer's calculation that under-specified a structure, a consultant's report that missed something material, or a marketing agency's campaign that breached someone else's trademark.

Most policies also extend to a handful of related risks that catch people out if they are missing: breach of confidentiality or privacy, unintentional infringement of intellectual property and defamation arising from your professional work. Cover for the dishonesty of an employee is automatic on some wordings and an optional extra on many others, usually only once fraud is proven and usually excluding the owner's own dishonesty. If you use subcontractors or other consultants on a job, check whether their work is covered under your policy or needs its own; whether it flows through automatically depends entirely on the wording, so it is worth checking specifically rather than assuming.

The sum you are insured for is called the limit of indemnity, and it is rarely your choice alone. Many contracts, tenders and regulators specify a minimum, so the right limit depends on what you sign. In practice, most of the clients we place carry somewhere between $1 million and $2 million. Government departments and large corporations tend to ask for more: a $10 million limit is a common contractual requirement on tenders and head contracts, so if you chase government or corporate work, check that number before you quote on the job, not after you have won it.

Two mechanics inside that limit matter as much as the number itself. First, check whether the limit applies on any one claim or in the aggregate across the whole policy period. An aggregate limit that looks generous on day one can be worn down by an earlier claim, leaving less than you think available for the next one. Second, check whether your legal defence costs sit inside that limit or on top of it.

A costs-inclusive limit means every dollar spent defending you is a dollar less left for damages, so a $1 million costs-inclusive limit can leave far less real protection than a $1 million costs-exclusive one. Most policies also carry an excess, a fixed amount you carry yourself on every claim before the policy responds, and it is worth knowing that figure before a claim letter arrives.

Quick answerAn online quote asks what you do and what you turn over, while we check the retroactive date against your actual practice history, the limit of indemnity against what your contracts, tenders or licensing body require, and we flag run-off cover before you need it, and we look past the label when a client's heaviest exposure is cyber or intellectual property rather than negligent advice.

An online PI quote asks what you do and how much revenue you turn over, then gives you a number. It will not ask when your last policy's retroactive date was, whether your contracts require a specific limit of indemnity, or what happens to your cover if you take on a business partner next year. Those questions are where professional indemnity goes wrong.

When we place or review a professional indemnity policy, we check the retroactive date against your actual practice history, not just against the policy you are replacing, because a gap two insurers back can still be sitting there unnoticed. We check your limit of indemnity against what your contracts, tenders or licensing body actually require. And we flag run-off cover before you need it, at the point you take on a partner, change your business structure, or start talking about winding things down, not after the policy has already lapsed.

For consultants and design professionals, we check two wording details that change from one policy to the next.

The first is where your defence costs sit. Across the nine professional indemnity wordings we compared for consultants, designers, engineers and other professionals, four pay defence costs on top of the limit, three generally take them out of it, and on two the schedule decides. Two quotes showing the same limit can leave very different amounts for the claim itself, so we read what your schedule says.

The second is continuous cover, which matters when you knew about a problem job, never notified it, and are now switching. On seven of those nine wordings, that clause only helps if the same insurer covered you throughout. Two of the seven offer wider cover as an optional extra, and only two accept earlier cover with another insurer as standard. Switch without checking and that job can fall between the old policy and the new one. We check that clause before you move, so speak to a broker before you accept a new quote.

We also look past the label on the request in front of us. A lot of the professional services and information and technology (ICT) consulting clients who come to us for "a PI quote" are running a business whose biggest real risk sits somewhere else entirely.

A business that designs websites, builds brands, runs SEO or manages digital marketing and advertising for other companies is giving professional advice, but its heaviest exposure is usually what happens if a client's data is breached, if a logo or an image turns out to infringe someone else's copyright or trademark, or if content it published on a client's behalf lands the client in a dispute. A standalone professional indemnity policy responds to negligent advice.

It was never built to carry a cyber incident, a privacy breach or an intellectual property dispute at the scale a content or digital business actually faces day to day. For that client, a combined policy that bundles professional indemnity together with cyber and public liability cover in one product is usually the properly protected answer. See Cyber Insurance for what that risk looks like on its own.

Quick answerThe same handful of mistakes cause most of the trouble here: sitting on a problem instead of notifying it, assuming public liability covers advice, switching insurers without checking the retroactive date, cancelling the policy the day you stop trading rather than buying run-off, setting the limit to whatever is cheapest instead of what your contracts require, and assuming a subcontractor's work is covered under your wording.

Sitting on a problem instead of notifying it. In our experience this is by far the biggest and most costly mistake small business owners make with this cover. Under a professional indemnity policy you must notify your insurer once an event occurs, even if it is only a notification and nobody has formally complained yet. If you already suspect a job might turn into a claim, tell your insurer in writing before your policy expires. Wait until renewal and you may have lost the right to claim on it at all.

Buying public liability and assuming it covers advice. It does not. If a client's loss came from what you told them or produced for them, not from a physical accident, only professional indemnity insurance responds.

Switching insurers for a cheaper premium without checking the retroactive date. A quote that looks 20% cheaper is not a saving if the new policy's retroactive date resets to today, because every year of past work before that date is now uninsured. Ask the exact question before you switch: what date does this policy go back to, and does it match what I already had.

Cancelling the policy the day you stop trading. Whether you retire, sell up or wind up a company, the exposure to past work does not end when the policy does. Without run-off cover, a claim about a job from three years ago has nothing to respond to it.

Setting the limit of indemnity to whatever is cheapest rather than what your contracts require. Most of the clients we place carry somewhere between $1 million and $2 million, which covers most day-to-day work, but government tenders, head contracts and some licensing bodies commonly set a $10 million minimum, and quoting under that figure is not a discovery you want to make once you have already signed the contract.

Assuming a subcontractor's work is covered under your policy. If you engage other consultants or tradespeople on a job and something they did goes wrong, whether that flows back to your policy depends on the wording. Check it before the job starts, not after the complaint arrives.