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Definition of Professional Indemnity Insurance

Business owners purchase professional indemnity (PI) insurance policies to protect themselves and their companies from financial liability in case of claims of negligence. PI plans also provide financial assistance to the insureds as they fight lawsuits brought against them in court. Professionals who work in different industries can choose several types of PI plans to protect their businesses.


Professionals transfer their liability to the insurance company when they purchase PI policies. When a lawsuit is brought against an insured professional, the insurance covers the legal fees, which can cost thousands of dollars. Insurers also conduct their own investigation into the claims made against their clients. If the insureds are found liable in a court case, the insurers pay the award amounts up to the policy's coverage limit. The PI policy also covers the actions of the insured's employees and staff members.


Several types of insurance plans are considered PI policies, including errors and omissions, malpractice and professional liability policies. These types of policies are purchased mainly by professionals such as doctors, lawyers, accountants and architects. These policies cover mistakes and acts of negligence committed by the insured while performing services that cause damages to a third party.


A professional applying for PI insurance is granted or denied coverage by an insurer based on several factors, including business locations, claims history, industry and coverage amount. The premium amounts reflect the degree of risk determined by these factors. If a professional is granted a policy but poses a higher risk than standard applicants, his premiums will be raised by the insurance company.

Time Frame

Liability does not end for a professional once he retires or closes his business. Since PI plans only pay claims when they are in effect, a professional is left unprotected if a third party decides to sue him years later. To prevent this scenario, the insured can add "run-off"' coverage to his PI policy. Run off coverage provides protections for a period after the insured shuts down his business.


Without an indemnity insurance plan, the professional takes a tremendous risk that jeopardises his business and personal belongings. For example, a professional without a PI policy would be responsible for the full award amount won in court plus the legal fees. This can cost a professional millions of dollars and can essentially drive him to bankruptcy with insurance protection.

About the Author

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