What is business indemnity insurance

by anne jane in Business, Finance on 5th November 2018

Indemnity insurance is an agreement where one party agrees for compensation for potential or actual damages or losses maintained by another party. Mostly known for the insurance policy provided to protect business owners or professionals when found for a fault in specific events like misjudgment. Indemnity insurance is also called “professional liability insurance” is an additional type of liability insurance particular to individual service providers or professionals. It covers claims coming from possible failure or negligence to perform, resulting in a financial loss or legal problems. A client suffering the loss has the ability to file a claim and acknowledging that, professional’s indemnity insurance will reimburse litigation charges and for any damages issued by the court.

Typical cover

The insurance coverage includes depending on the policy the businesses selected. It could be allowed for Public relations costs, Legal and court costs, Court attendance costs, Claims investigation costs. However, insurance will not be paid for Known claims and circumstances, Bodily injury/ property damage, Intentional damage, Fraud, and dishonesty.

Is it compulsory to have business indemnity

In regards to the industry sector, regulatory requirements, many enterprises need business indemnity insurance. To get a contract, managers who work on a contract basis need to have this insurance. However, without the insurance, businesses need to pay thousands of dollars along with the legal fees to defend the claim. This is in interest to the opportunity cost.

No matter the size of the business, without business indemnity insurance the financial position have to be left unprotected if a claim is caused against the business. Although the professionals are cautious and provide the best possible service, mistakes do happen. Acknowledging about the insurance is in place will give the entrepreneurs a solace that the organization is protected.

Up to what limit a business indemnity can be covered?

Selecting an indemnity insurance limit depends on the organizations’ situations. If there is a need then the client will have said about the minimum amount. This is common for every industry sector, so check before arranging the cover. To set the indemnity limit, always think of the worst case scenario and about the financial implications. This coverage should include losses and legal fees which would be activated by the client. Having said that, while the earnings from a particular contract are minimal, the size of the contract can give a more correct picture of full financial disclosures in the event of a loss.

Difference-Claims made and claims occurring

Insurance is provided on two basis: Claims Made and Claims Occurring. In general, on claims occurring businesses are provided the claims occurred due to damage or loss happened when the term of a policy irrespective of when it is made. Instead, professional indemnity insurance is provided on a claims-made basis, which means the businesses are protected with the claims or situations occurred during the policy term. If a claim is done in opposition to the business after the PI is ceased then that insurance will not be covered.


On the whole, if there is a sole enterprise then entrepreneur will become liable for the damages made by the other person. The businesses can also face claims for breach or negligence in providing the services or advice. So, it is always better to have business indemnity insurance which protects the business from facing claims on the alleged negligence. However, one advice is the right professional indemnity can give a peace of mind security and protect the valuable reputation.

Categories: Business Finance