Concise guide to professional Indemnity (PI) Insurance for company directors

If you provide professional services to clients, you will almost certainly have heard of PI insurance. Many clients expect individuals who provide expertise to have a certain level of cover in place before starting a contract.

But what exactly is professional indemnity insurance, what does it insure you against, and do company directors really need it?

What is professional indemnity insurance?

Professional indemnity insurance protects you if a client claims they lost money because of your actions. It can cover the cost of defending an insured claim and any damages or compensation you become liable to pay, subject to the policy’s limit, excess, terms and exclusions.

Depending on the policy, cover may extend to claims involving:

• Negligence, for instance, because you gave the wrong advice or carried out professional work incorrectly. Where physical damage is involved, public liability insurance may also be relevant depending on the circumstances.
• Accidental breach of copyright or confidentiality. For example, you might unintentionally breach confidentiality by copying someone you shouldn’t into an email by mistake. Deliberate or dishonest acts are commonly excluded.
• Loss of data or documents.
• Defamation. This is where a client claims you said something that has harmed their reputation.
• Certain breaches of professional duty or contract arising from the professional service you provided.

The precise scope of cover varies between insurers, so you should always check the policy wording and exclusions.

Who should buy professional indemnity insurance?

You should consider buying professional indemnity insurance if you:

• Are a contractor, freelancer, consultant or otherwise self-employed and provide advice or professional services.
• Do business through your own limited company – i.e. you are a director and/or an employee. The company will normally take out the policy, with its directors and employees covered while acting on its behalf.
• Give your clients advice or provide them with a professional service because you’re an IT or marketing consultant, for instance.
• Create designs as part of your service, for instance, because you’re an architect or interior designer.

Umbrella companies often have professional indemnity insurance in place as part of their wider business insurance arrangements. However, you should check what cover actually applies to your work, whether it meets the requirements of your client contract and what happens to that protection after you leave the umbrella.

Why do I need professional indemnity insurance?

Often, buying professional indemnity insurance is a requirement of your contract. The client may ask for proof that you have it, such as a copy of your policy schedule.

Some professional bodies and regulators may also require you to have professional indemnity cover.

That said, it’s worth considering professional indemnity insurance even if you don’t have to, for two reasons:

1. For your peace of mind.
2. To protect your business from potentially serious financial losses.

For peace of mind

For a client to win a negligence claim, they’ll usually need to prove, on the balance of probabilities, that:

• Your behaviour fell short of the standard the law or your contract expected of you.
• They lost money as a result.

The precise legal tests will depend on whether the claim concerns negligence, breach of contract, misrepresentation, defamation or something else.

Your client won’t win unless they can reach the standard of proof the court expects. But a weak case doesn’t mean they won’t make a claim if they’re unhappy. And while you may eventually win, you could still have to instruct a solicitor, respond to legal proceedings and pay professional fees.

In England and Wales, many claims based on a simple contract or negligence must be brought within six years. However, the starting date and applicable deadline depend on the circumstances.

Different periods can apply to claims involving latent damage, contracts executed as deeds and defamation proceedings. You can find the detailed rules in the Limitation Act 1980.

You could therefore face a claim long after a project is done and dusted.

Professional indemnity insurance won’t stop clients from suing you. However, if an insured claim arises, the policy can provide access to professional support and help meet covered defence costs and damages.

Safeguarding your finances

Let’s say your client is claiming your actions cost them £100,000. In England and Wales, because the claim is between £10,000 and £200,000, it currently costs 5% of the amount – that is £5,000 – to issue the claim. This is called the issue fee.

Your client pays the issue fee at the start of the proceedings. But if you lose the case, the court may order you to pay it back to your client. And that’s in addition to:

• The £100,000 in damages your client originally claimed, though the court might decide to award a lower sum.
• Interest, if the court decides to award it.
• Any other court fees, for example, the cost of appointing expert witnesses.

And then, of course, there are the solicitor’s costs to consider. Alongside your own solicitor’s fees, the court may also order you to pay part or all of your client’s solicitor’s fees.

You don’t need to be a maths genius to see how this could put you out of business. Professional indemnity insurance can cover insured damages and legal costs, subject to the policy limit, excess and other terms.

You should notify your insurer as soon as you become aware of a claim or a circumstance that could lead to one. Policies commonly require the insurer’s consent before you admit liability, agree a settlement or incur substantial legal costs.

When should I buy PI insurance?

The simple answer is: as soon as possible. Have you been in business for a while but never bought professional indemnity insurance? You may still be able to protect yourself against claims relating to past work by buying a policy with retroactive cover.

What is retroactive cover?

Professional indemnity insurance is generally written on a claims-made basis. This means the policy in force when the claim is made and notified is normally the relevant policy.

However, the policy will usually cover earlier work only if that work took place on or after its retroactive date.

Let’s say you take out a professional indemnity policy on 20 April 2026. A client later sues you for damages they claim they suffered as a result of a job you completed on 10 March 2025.

If the policy has no suitable retroactive cover, the claim may not be insured because the work took place before the applicable retroactive date. This means your company could have to pay its own legal costs and any damages for which it is liable.

But if the insurer agrees a retroactive date that includes 10 March 2025, the policy may respond to the claim, subject to its other terms and provided you were not already aware of the problem when you took out the cover.

A retroactive date is not the same as the start date of your current policy. It is the date before which the insurer will not cover work you carried out. The Financial Conduct Authority explains the distinction here.

To buy retroactive cover:

• Make sure you disclose any outstanding claims or circumstances that could lead to a claim, for instance, a client who has made it clear that they’re unhappy with your work. Existing claims and known circumstances are normally excluded, and failing to disclose relevant information could jeopardise your cover.
• Ask your insurer to provide cover from a particular date in the past. This is the retroactive date.
• The retroactive date could be the date you registered your limited company or the date when you started work on your first client project.
• The insurer will decide whether it is prepared to accept the risk and agree the requested retroactive date. Cover will begin once the policy has been accepted and put in force.

What about future claims if you stop working or retire?

Professional indemnity insurance generally needs to be in force when the claim is made and notified. So if you stop your policy today and get sued for something you did in 2023, you may not be covered, even though you had an active policy in 2023.

In England and Wales, many negligence and simple contract claims are subject to a six-year limitation period. However, the applicable period and the date on which it begins will depend on the nature of the claim.

So, if you’re closing your business or retiring, it’s worth considering a professional indemnity policy that protects you from your historic liabilities. This is called run-off cover.

What is run-off cover and how does it work?

Run-off cover protects you if a client makes an insured claim arising out of a past job, but not for claims arising out of future jobs.

Let’s say you close your business on 4 May 2026. You tell your insurer you’ve stopped trading but would like to have run-off cover in place.

Your run-off policy could cover you if you’re sued by a client you worked with in January 2019, provided the work falls within the policy’s retroactive period and the claim meets its other terms.

However, it won’t cover you if you’re sued in relation to a job you do after 4 May 2026.

How long should I keep buying run-off cover for?

The simple answer is, it depends. Although six years is an important limitation period for many claims, it does not necessarily start on the day you finish the job.

Depending on the nature of the claim, time may start running when the breach occurs, when the client suffers loss or, in some negligence cases, when the client acquires the necessary knowledge.

A longer limitation period may also apply if you entered into a contract as a deed. This means a claim could arise considerably more than six years after you completed the work.

For this reason, it’s worth getting advice from a solicitor or your insurance broker before stopping your run-off cover.

How much does professional indemnity insurance cost?

Well, how long is a piece of string? The cost of your policy will depend on a number of factors, including:

• The level of cover. A policy that covers you for losses of up to £250,000 will be cheaper than one that covers you for losses of up to £1 million.
• Your excess payment. This is the amount of money you have to pay out of your own pocket when you make a claim. Most policies will have a standard excess. That said, some insurers will give you the option of paying a higher excess in exchange for a lower premium.
• Any add-ons. Do you also want public liability cover? Or some other additional extra? This will raise your premium.
• The type of business you run, as some are more at risk of being sued than others, the size of your turnover, whether you have any employees and whether you’ve had any claims in the past.
• Your insurer. Some insurers are more expensive than others. That said, price isn’t the only consideration, so compare the scope of cover, excesses, exclusions and claims handling as well as the premium.

Professional indemnity premiums taken out for the purposes of your company’s trade are normally deductible when calculating its taxable profits.

However, this does not mean that every type of insurance bought by a business is automatically tax-deductible. HMRC states that the treatment depends on what is insured and whether the policy was taken out for the purposes of the trade. You can read more in HMRC’s Business Income Manual.

How to buy professional indemnity insurance: 4 tips to get you started

Step 1: How much cover do you need?

Your contract may specify the minimum level of cover you need. But, depending on the nature of your business, you may opt to buy more.

Consider the maximum credible financial loss that could arise from your work, as well as potential legal costs. You should also check whether legal costs are included within the policy limit or paid in addition to it, and whether the limit applies to each claim or across all claims during the policy year.

Step 2: Do you need public liability, business liability or some other type of insurance?

Many insurers offer discounts if you buy multiple policies. For this reason, bolting on additional cover to your professional indemnity policy may work out cheaper than buying separate policies from different insurers.

Our guide to business insurance for limited companies explains the main types of cover and when they may be required.

Step 3: Pick a reputable insurer

Not all insurers are created equal. You’ll want a provider with a reputation for handling claims efficiently and, more importantly, understanding how your business works. Looking for an insurer that specialises in contractors and freelancers is a good starting point.

Step 4: Read the policy document carefully before you buy

Make sure you understand exactly what’s covered and, more importantly, what isn’t before you buy. You want to keep your premium reasonable. But you also want to pay as little as possible out of your own pocket in the event of a claim.

Check the policy’s exclusions, excess, retroactive date, notification requirements and whether defence costs count towards the overall indemnity limit.

Not sure where to start looking for limited company professional indemnity insurance?

You can get a professional indemnity insurance quote from Qdos. We’ve worked with Qdos for over a decade across our sites, and they specialise in insurance for contractors, consultants and small businesses.