Avoid These Mistakes When Selecting Professional Indemnity Insurance

When running a business or offering professional services, one wrong decision, a small oversight, or a client disagreement can spiral into expensive claims and lawsuits. This is why professional indemnity insurance (PI insurance) is a must-have safeguard for consultants, freelancers, agencies, and businesses across industries.

But here’s the catch: not all PI insurance policies are created equal. Many professionals purchase coverage without carefully checking the fine print—only to realize too late that their policy doesn’t fully protect them when a claim arises.

To help you avoid costly mistakes, we’ve compiled a guide on the most common pitfalls people make when selecting professional indemnity insurance, and how you can avoid them.

What is Professional Indemnity Insurance?

Before diving into the mistakes, let’s get clear on what PI insurance actually does.

Professional indemnity insurance protects businesses and individuals from claims arising out of professional mistakes, negligence, breach of duty, or incorrect advice. If a client claims that your service or guidance caused them financial loss, your PI insurance covers the legal defense costs, compensation, and settlements.

Industries that often need this insurance include:

• Consultants and advisors

• IT service providers

• Architects and engineers

• Lawyers and accountants

• Marketing and creative agencies

• Healthcare professionals

In short: if your advice or service impacts a client’s business or finances, you need professional indemnity insurance.

Mistake 1: Ignoring Policy Exclusions

One of the biggest traps professionals fall into is assuming that PI insurance covers “everything.” In reality, every policy comes with exclusions—specific circumstances or events that are not covered.

Common Exclusions to Watch Out For:

• Fraudulent or criminal acts – If you knowingly mislead a client, no policy will protect you.

• Contractual liabilities – Some policies exclude liabilities you accept under a contract, unless they would apply even without that contract.

• Bodily injury or property damage – These are usually covered under general liability insurance, not PI insurance.

• Insolvency of your business – Claims related to your company going bankrupt are typically excluded.

How to Avoid This Mistake:
Always request a copy of the full policy wording, not just the summary. Carefully review the exclusions and ask the insurer or broker to clarify any grey areas. Align your policy with your specific industry risks.

Mistake 2: Overlooking Coverage Gaps

Another common issue is buying PI insurance with coverage gaps that leave you exposed. For example:

• A policy might cover “negligence” but not “breach of intellectual property.”

• Some insurers may cover claims filed during the policy period but exclude work done before the policy started.

• Coverage might only apply within your home country, leaving you unprotected for international clients.

How to Avoid This Mistake:

• Map out your services and client base. Do you handle sensitive client data? Do you work with overseas clients? Does your work involve intellectual property?

• Match your policy coverage to your actual professional risks.

• If you spot gaps, request endorsements or extensions to close them.

Mistake 3: Ignoring the Retroactive Date

The retroactive date is one of the most overlooked yet critical elements of a PI insurance policy. It determines how far back your policy will cover professional work.

For example:

• If your retroactive date is January 2023, and a client sues you in 2025 for a mistake made in 2022, your claim will not be covered.

How to Avoid This Mistake:

• Always request an unlimited retroactive date (or as early as possible).

• When switching insurers, ensure that your new policy honors the same retroactive date.

• Avoid policies that reset or limit retroactive coverage unless you’re just starting out.

Mistake 4: Choosing Insufficient Limits

Many professionals select PI insurance limits purely based on price. While saving money sounds great, underinsurance can leave you exposed to massive financial losses.

For example, legal defense costs in a single case can easily exceed $100,000. If your coverage limit is too low, you’ll have to pay the excess amount yourself.

How to Avoid This Mistake:

• Assess the size of contracts you handle and the potential damages of mistakes.

• Consider regulatory requirements (some industries mandate minimum limits).

• Remember: it’s not just compensation, but also legal fees and settlement costs that add up.

Think of PI insurance limits as your financial safety net—the stronger it is, the better protected you are.

Mistake 5: Focusing Only on Price

Price is an important factor, but buying PI insurance based only on the lowest premium is risky. Cheap policies often come with restrictive terms, high deductibles, or limited claims support.

How to Avoid This Mistake:

• Compare policies side by side, not just premiums.

• Review what’s included, exclusions, retroactive cover, and claim handling process.

• Choose value over cost. A slightly more expensive policy that offers broader protection is often the smarter investment.

Mistake 6: Overlooking the Insurer’s Reputation

Not all insurers are equal. Some may delay or complicate claims settlement, while others may have poor financial stability. If your insurer fails when you need them most, your PI insurance becomes worthless.

How to Avoid This Mistake:

• Research the insurer’s financial strength ratings (from agencies like AM Best or S&P).

• Read reviews and testimonials from other professionals in your industry.

• Check how quickly and fairly they handle claims.

• Consider working with insurers who specialize in professional indemnity insurance for your sector.

Mistake 7: Not Reviewing and Updating the Policy

Your business evolves—new services, bigger contracts, international clients. But if you don’t update your PI insurance regularly, you could end up underinsured or non-compliant.

How to Avoid This Mistake:

• Review your PI insurance annually or whenever there’s a major change in your business.

• Inform your insurer about new services or expansions.

• Adjust limits and endorsements to reflect your current risk exposure.

Mistake 8: Forgetting About Run-Off Cover

Many professionals forget about run-off cover when retiring, changing careers, or shutting down their business. Claims can arise years after you’ve stopped working.

Without run-off cover, you’ll have no protection for past work.

How to Avoid This Mistake:

• If you retire, sell your practice, or change careers, ask for run-off cover.

• Some industries require run-off insurance for several years post-retirement.

Best Practices for Selecting the Right PI Insurance

To ensure you avoid these mistakes, here’s a checklist when selecting PI insurance:

1. Read the policy wording thoroughly – Know exactly what is and isn’t covered.

2. Close coverage gaps – Add extensions where needed (e.g., IP, cyber liability).

3. Check retroactive date – Request unlimited coverage if possible.

4. Choose sufficient limits – Base this on contract values and potential damages.

5. Research insurers – Look at reputation, financial stability, and claims service.

6. Review regularly – Update coverage as your business evolves.

7. Plan for the future – Consider run-off cover when winding down operations.

Final Thoughts

Selecting the right professional indemnity insurance is not just about ticking a box for compliance—it’s about protecting your livelihood and reputation. The right PI insurance policy gives you peace of mind, knowing that one mistake or unhappy client won’t derail your career or business.

By avoiding the mistakes we’ve outlined—such as ignoring policy exclusions, overlooking coverage gaps, or settling for insufficient limits—you can ensure you’re fully covered.

Remember: investing in the right PI insurance is not an expense, but a long-term safeguard for your business growth, financial stability, and peace of mind.