Why Consultants Need Professional Indemnity Insurance
Why do business consultants need professional indemnity insurance cover? Is professional indemnity insurance necessary for business consulting?
This article seeks to provide the why’s that necessitates a business consultant’s need for professional indemnity insurance. But before we go into the why’s, let’s discuss what professional indemnity insurance is.
What Is Professional Indemnity Insurance?
Professional indemnity insurance (PII) comes in a variety of names while maintaining the same structure and framework. It is also called professional liability insurance (PLI) while in the United States of America, it is commonly referred to as error & omissions insurance.
Whichever name you come across, professional indemnity insurance is an insurance policy that provides a legal backing when you get lawsuits filed against you by clients who are dissatisfied about your services or feel you did not provide as much quality and value as they expected you to provide.
Whether the error came as a result of your sincere undoing or a misconception by the customer, a lawsuit can be filed against your business.
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The insurance policy that covers for the legal liabilities is called professional indemnity insurance or what is commonly called an error and omissions insurance in the US.
If your job description is to provide advice or a service like business consultancy, professional indemnity insurance is an important insurance cover for you. It will protect you from bearing the complete cost of a supposed negligence claim filed by a client.
This insurance cover focuses on a belief failure on the path of a consultant to provide the client with accurate information to aid the decision-making process for the client.
A client may file a lawsuit when he or she feels your consultancy is the reason why they suffered a failure. Also, the client may feel you omitted certain important facts when they consulted with you hence the brain behind their failure.
The professional indemnity insurance covers any financial loss that your client may have incurred due to the supposed error or omission on your path as a business consultant.
Usually, general liability insurance may be perceived to cover for these scenarios but its provisions do not perfectly insure your business from these risks. Professional indemnity insurance is designed as coverage for businesses that are faced with this manner of risks.
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Will a Professional Indemnity Insurance Cover For Criminal Prosecution?
A professional indemnity or liability insurance policy does not make provisions for criminal prosecutions. It also does not cover any form of legal liability under civil law except the ones clearly stated and identified in the insurance policy by the insurer.
Why Do Business Consultants Need Professional Indemnity Insurance?
Regardless of what your intentions are as a business consultant, providing services and offering professional advice will not always end on the positive side.
Human wants like we learned from basic economics are insatiable and so it is with providing services. People will not always be completely satisfied with the services you offered.
The dissatisfaction is even on the lighter side, an advice you give or a service you provide may be to the client the cause of his or her failure and possible loss. An event such as this can put you and your business under serious financial strain.
This is because you may be asked to pay for the loss the client incurred upon heeding your advice or if dissatisfied with your service, the client may request a refund of the money he or she paid or a compensation.
You can not completely avoid situations such as these no matter the expertise and skills you have gathered as a business consultant. Even though you have become a force to be reckoned with so long consultancy in the business industry is concerned, you may still encounter these problems. The best of the best are not exempted.
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With how slim the chances are of never encountering these problems, every business consultant needs professional indemnity insurance. With professional indemnity insurance, you can continue your business consultancy with the assurance that legal liabilities and customer dissatisfaction is taken care of even before they arise.
The following are reasons why a business consultant needs professional indemnity insurance:
1. General Liability Insurance is Not a Perfect Cover for Business Consultants
General liability insurance does not fully cover the risks and threats faced by business consultants. Do not make the mistake of believing that your general liability insurance is sufficient to cover your consultancy insurance needs.
The standard general liability insurance will not compensate you when customer dissatisfaction issues arrive.
It is good you have general liability insurance for your consulting firm, having professional indemnity insurance is quintessential and must not be overlooked.
2. The Best Make Mistakes
Humans are frail and full of flaws. Even super-humans and superheroes do not get a 100 percent score of perfection.
You may have graduated from Harvard Business school getting A’s in all your courses, it does not guarantee you will offer consultancy without any errors. Your MBA puts you among the best in business consultancy but you are human and can make mistakes.
3. Cover for Legal Fees
Your advice or service may cause a client to lose money which would prompt legal actions and the filing of lawsuits against you. In a situation like this, you are both faced with the cost of defending the lawsuit, paying for the loss suffered by the client, and possibly a compensation fee. This will definitely pose a serious financial strain on your business.
To lessen the effect these events may have on your business, you will need to acquire a professional liability insurance. The professional liability insurance covers the cost of the lawsuit and every other legal fee that would be demanded of your business.
But remember, if the cost of a lawsuit goes beyond the policy amount limit, the funds will have to come from your business.
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What Is The Cost of a Professional Indemnity Insurance?
The cost of professional indemnity insurance varies between $500,000 to $4,000,000 depending on what your insurance provider feels are the potential risks facing you as a business consultant.
A typical professional indemnity insurance consists of a per-occurrence liability limit and an aggregate liability limit.
The need for professional indemnity insurance for your business consultancy firm cannot be overemphasized.
As a business consultant, chances are you have advised other business owners to acquire the same insurance policy, what stops you from doing the same for your own business?
Get professional indemnity insurance today to save yourself from the perils of omissions, errors, and customer dissatisfaction. You may also like to check out these FAQs about professional indemnity insurance in Australia.