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5 reasons why you should have Professional Indemnity Insurance

Written by

Shaun McGowan

Five reasons why you should have professional indemnity insurance

If you operate a business in Australia providing services or advice (rather than making or selling tangible products) then you have a specific set of responsibilities to your clients regarding the level of service you provide – and you face an associated set of risks.

Here are five reasons why you really need PII to protect your business.

1. You have a legal responsibility to your clients

As a qualified professional you have knowledge and experience your clients do not have. Under Australian common law your clients have the right to rely on your advice and to expect you to provide your advertised service to professional standards.

If a client were to lose money or business as a result of following your advice, or of something you do in the course of your work, they may claim that you have breached your professional duty of care. They may seek to recover their losses from you by suing you for breach of contract, negligence, omission or misrepresentation.

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2. You may not be allowed to work with out it

For many professionals in Australia it is either a legal requirement or a condition of registration with your professional body that you have a certain level of PII in place. Anyone working in the legal or medical profession is captured by this type of legislation - as are many others including real estate agents, psychologists, architects, SMSF auditors and Tax / BAS agents - for whom PII is a condition of receiving a licence to operate.

In many sectors there are strong professional bodies that regulate standards and behaviour. Many of these – including the Institute of Chartered Accountants, CPA Australia and the Australian Natural Therapists Association - require professional indemnity insurance as a condition of membership.

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3. You may not be able to get work without it

Even if you aren’t required to have PII to operate in your field, many clients will not want to work with you unless you have it in place. In particular many NGOs, charities and government entities have policies in place restricting them to working with contractors who can provide proof of both public liability and professional indemnity insurance cover.

This is because professional indemnity insurance doesn’t just protect you – it protects your clients too (which is exactly why it is a legal requirement for many industries). If you do something that causes one of your clients to suffer a major financial loss, but you do not have the funds available to compensate them, then their business could be at risk as well as yours.

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4. Your professional reputation (and therefore your business) may depend on it

For most professionals, your reputation is your most valuable asset. It’s the reason clients choose to work with you instead of your competitors. If something happens to damage that reputation it could put you out of business.

The problem is that you don’t actually have to do anything wrong to be at risk of a professional negligence claim. If a client BELIEVES you are responsible for a loss they have experienced they may still decide to take legal action against you.

Even if a claim against you is unjustified – for example if you provided reasonable advice but a subsequent change in market conditions rendered that advice ineffective – you will still have to mount a costly legal defence in order to protect your reputation. Legal costs could amount to more than $15,000 per day at the court stage.


5. It could save your home

If you face a negligence claim it’s not just your business and your reputation that are on the line. Even if you are operating through a limited liability company you can be personally sued for damages if you are found to have been professionally negligent.

Depending on the nature of the claim and the size of loss your client has experienced those compensation payments could amount to hundreds of thousands of dollars, which means you could face personal bankruptcy and lose everything you own.

Professional indemnity insurance protects you if a client files a lawsuit against you for professional negligence that has caused them financial loss. PII covers the damages you are required to pay if a claim against you is upheld (up to the limit in your policy) plus the costs of defending your business against legal action, even where a negligence claim is unjustified.

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About the Author

Shaun McGowan from



Shaun McGowan

Shaun is the founder of and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded and Lend.


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