Professional indemnity insurance is designed to protect the insured against calamities or harm that may occur due to the mistakes made on the part of the insured. The errors in judgment that incur monetary losses or cause mishaps are covered by this insurance.
Other terms used for Professional indemnity insurance are professional liability insurance, errors and omissions insurance. But errors and omissions insurance in its true sense is just a part of the entire insurance policy. Malpractice insurance is another contract that comes under PI.
The difference in the term is mostly because of the sector of business or the people they are likely to serve insurance to. For example, medical professionals like doctors, therapists and surgeons are more likely to obtain the malpractice insurance. Malpractice insurance is usually for tangible things. Mistakes or negligence would come under errors and omissions which are usually for insurance agents, lawyers, and consultants who need to be covered by such a policy. Intangible things like data are covered by this insurance.
A lawsuit can be filed by a client who has suffered a loss. Since the company is already insured; the cost of defending against the claim of settlement is taken care of by the insurance.
The reason professional indemnity insurance is necessary for businesses is to protect the insured from mistakes and mishaps that can take place while handling information about a client or business, guiding or advising a client, professional services rendered which do not meet the expectations of the client.
This insurance provides coverage which is very important for new businessmen who are learning the ways of the trade. Losing monetary support in the beginning of the business is a discouraging factor that will lead to working within a comfort zone. Taking up challenges and overcoming obstacles will not be on the fresher’s agenda due to fear of failure. Professional negligence, loss of documents, loss of data, unintentional breach of confidentially or copyright, loss of goods, monetary losses, and cost of claim investigation are covered by the insurance.
Foul play is not encouraged and a thorough investigation is conducted before compensating the insured. The insured cannot get away with malpractices like intentional damages, insolvency or bankruptcy of the insured, situations and claims that occurred before the policy was issued, or an act of terrorism.
In the long run, this insurance has proved to be an asset for many multinational companies where such accidents are seen often.