Professional Indemnity Insurance: What It Is and How It Works

By Mark Fitzpatrick

Edited by Lukas Velunta

Updated: September 10, 2025

Advertising & Editorial Disclosure

Key Takeaways

Professional indemnity insurance covers legal costs when clients claim your work caused them financial loss.

It covers professional mistakes and confidentiality breaches but excludes intentional fraud and physical injuries.

Your coverage amount depends on contract requirements, project values, industry risk and business size.

What is Professional Indemnity Insurance?

Professional indemnity insurance provides financial protection when clients blame you for costing them money. Also called professional liability (PL) or errors and omissions (E&O) insurance, this coverage handles legal bills and settlements (subject to policy terms and conditions) if someone decides to sue you for alleged mistakes.

You can get professional indemnity insurance on its own or bundle it with other business coverage. Most professionals work with specialist brokers who understand the ins and outs, though you can also buy directly from insurers.

Insurance requirements and coverage options vary by state and profession. Consult with licensed insurance professionals to determine appropriate coverage for your specific business needs.

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What Does Professional Indemnity Insurance Cover?

Professional indemnity insurance protects you when clients claim your professional work caused them financial harm, but its coverage has limits.


A client claims your advice caused financial loss.	✅	A tax accountant incorrectly advises a client to use a specific deduction structure, resulting in $15,000 in IRS penalties and missed savings. The policy covers legal defense costs and the settlement because this represents professional negligence in tax advisory services.
Physical injury occurs on your premises.	❌	A client visits your consulting office and slips on a wet floor, breaking their leg and requiring surgery. This bodily injury falls under general liability insurance, not professional indemnity, because it's unrelated to your professional services.
You accidentally breach client confidentiality.	✅	A marketing consultant mistakenly sends Client A's confidential campaign strategy to Client B, a direct competitor. The policy covers the resulting lawsuit and $25,000 in damages because this represents an unintentional breach of professional duty.
You intentionally mislead a client.	❌	A financial advisor knowingly recommends high-commission investments that aren't in the client's best interest, resulting in significant losses. Professional indemnity coverage always excludes intentional fraud, criminal behavior and deliberate misconduct.
Your work contains errors that lead to losses.	✅	A structural engineer's miscalculation in load-bearing requirements forces a construction company to rebuild a foundation, costing $75,000 in delays and materials. Your policy covers professional negligence resulting from errors in engineering calculations.
A data breach exposes client information.	❌	Hackers infiltrate your firm's servers and steal sensitive client financial records, leading to identity theft claims. Most professional indemnity policies specifically exclude cyber incidents. You need dedicated cyber liability insurance for data security breaches.
You miss contractual deadlines.	✅	A digital marketing agency fails to launch a client's holiday campaign on time due to internal delays, causing the client to miss peak sales opportunities worth $40,000. Professional indemnity insurance usually covers breach of contract timing.
Employee files discrimination lawsuit.	❌	A former team member sues your consulting firm for wrongful termination based on age discrimination, seeking damages and reinstatement. Employment-related disputes require employment practices liability insurance (EPLI), not professional indemnity coverage.

How Much Professional Indemnity Insurance Do You Need?

Most states don't require professional indemnity insurance by law, but regulatory agencies mandate that some professions carry it to maintain licenses or meet standards.

1
Legal Professionals
Idaho implemented a rule in 2018 requiring lawyers to carry legal malpractice insurance, joining Oregon, which has required lawyer participation in a malpractice insurance regime.
2
Real Estate Agents
Colorado requires real estate brokers to have errors and omissions insurance with minimum coverage of $100,000 per claim and $300,000 annual aggregate (total annual limits).
3
Government Contractors
Federal Acquisition Regulations require businesses working on government projects to carry professional liability insurance.

Once you know any legal requirements, you'll need to decide how much coverage makes sense for your business. Many clients specify minimum coverage in contracts, so check those first. Consider your biggest projects and potential losses.

If a major client sued over a costly mistake, could you handle the settlement and legal bills? Your industry risk level, business size and claims history also affect both your premiums and coverage needs.

Who Needs Professional Indemnity?

Professional indemnity insurance protects anyone whose expertise, advice or specialized services could cause financial harm if something goes wrong. These professions face the highest risk:

Lawyers

Legal errors can cost clients cases, settlements or missed opportunities. Even minor oversights like missing contract clauses can lead to expensive lawsuits.

Medical Professionals

Treatment errors or misdiagnoses can result in malpractice lawsuits, substantial settlements and career-ending consequences.

Accountants

Tax advice mistakes can trigger IRS penalties and missed savings opportunities for clients. Missing VAT registration requirements or failing to detect fraud can lead to significant claims.

Engineers

Design flaws in structural plans can force costly rebuilds and construction delays. Even small calculation errors can create safety hazards requiring expensive fixes.

Financial Advisors

Investment recommendations that lose money or tax strategies that backfire can trigger major damage claims from clients who trusted their expertise.

IT Consultants

System failures, data breaches or software bugs can shut down client operations and expose sensitive information. Clients often blame consultants when security breaches occur.

Architects

Building design errors can create safety hazards requiring expensive reconstruction work. Flawed structural designs can force construction halts and complete redesigns.

Insurance for Professional Indemnity: Bottom Line

Professional indemnity insurance covers your business when clients blame your work for their financial losses. Professional indemnity policies handle professional mistakes and confidentiality breaches while excluding intentional fraud and physical injuries. When choosing coverage amounts, consider your contracts, project values and industry risk levels.

Professional Indemnity: FAQ

Professional indemnity insurance raises many questions for business owners, so we've answered the most common questions:

How does professional indemnity insurance differ from public liability coverage?

Professional indemnity insurance provides financial protection when clients claim your professional advice or services caused monetary losses, while public liability coverage handles physical injuries or property damage to third parties. Professional indemnity insurance doesn't cover bodily injuries, which require public liability insurance. Most businesses need both coverage types.

Do engineers need professional indemnity insurance?

Engineers need professional indemnity insurance because design flaws in structural plans force costly rebuilds and construction delays, while calculation errors create safety hazards requiring expensive fixes. Many engineering contracts require minimum coverage levels before project approval.

How do I find professional indemnity insurance brokers?

Look for brokers specializing in your industry with professional indemnity expertise. Industry specialist brokers understand coverage requirements and offer claims experience, industry knowledge and access to multiple insurers for competitive quotes.

What does professional indemnity insurance cost for accountants?

Professional indemnity insurance costs for accountants vary based on practice size, risk level and coverage amounts. Tax advice mistakes trigger IRS penalties and missed savings opportunities for clients, making coverage necessary for accounting practices seeking financial protection.

Do any states legally require professional indemnity insurance?

Most states don't require professional indemnity insurance by law, but regulatory agencies mandate coverage for some professions to maintain licenses. Legal professionals in Idaho and Oregon, real estate brokers in Colorado and government contractors must carry coverage per regulations.

What coverage limits should I choose for professional indemnity insurance?

Professional indemnity coverage limits depend on contract requirements, project values, industry risk and business size. Start with basic coverage and increase limits for high-value projects. Many clients specify minimum coverage requirements in contracts.

Can I get professional indemnity insurance if I'm self-employed?

Self-employed professionals need professional indemnity insurance because individual practitioners remain liable when clients claim advice or services caused financial losses. Many clients require proof of coverage before hiring freelancers or consultants, making insurance necessary for business development.

About Mark Fitzpatrick

Mark Fitzpatrick, a Licensed Property and Casualty Insurance Producer, is MoneyGeek's resident Personal Finance Expert. With over five years of experience analyzing the insurance market, he conducts original research and creates tailored content for all types of buyers. His insights have been featured in publications like CNBC, NBC News and Mashable.

Fitzpatrick holds a master’s degree in economics and international relations from Johns Hopkins University and a bachelor’s degree from Boston College. He's also a five-time Jeopardy champion!

Passionate about economics and insurance, he aims to promote transparency in financial topics and empower others to make confident money decisions.

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sources

Colorado Division of Real Estate. "Mortgage Loan Originator Insurance Requirements." Accessed August 11, 2025.
St. Mary's University School of Law. "Mandatory Legal Malpractice Insurance: Exposing Lawyers' Blind Spots." Accessed August 11, 2025.

Professional Indemnity Insurance