Companies in the UK need business insurance to cover the costs of liability claims and property damage. Business owners who don’t have an insurance policy for their company will pay out-of-pocket for legal claims against their business.
Working as a contractor in the UK requires you to have public liability and professional indemnity insurance because they are essential requirements for businesses, companies, and clients. Therefore, it is crucial to know the difference between these two types of insurance.
What is public liability insurance?
Public liability insurance is an insurance policy in the UK that covers individuals, businesses, contractors, events, and even community buildings. A contractor or company needs public liability insurance to cover the cost of legal actions, such as injuries, deaths, property damage, or economic loss due to negligence.
A company needs public liability insurance or protection when it comes into contact with third parties. For example, if you have a shop, pub, beauty salon, restaurant, hotel, etc., you will need this type of insurance to protect your business during harsh circumstances.
What is professional indemnity insurance?
Professional indemnity insurance is commercial insurance used by business owners. The purpose is to protect themselves in the event when a client claims their services are not up to the mark.
For instance, if you run a software company that develops mobile phone apps for other businesses, and one of your clients is not happy with your service, they can file a lawsuit. The court may penalize you for your negligence, causing you to pay heavy fines.
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So, this is where professional indemnity insurance comes in, covering compensation payments and any legal fees if your client sues you for a mistake or negligence. Keep in mind that this type of insurance does not cover your company’s reputational damage.
Most small companies, when they go into business, their understanding of risk and understanding of how to protect themselves against risk is not going to be their priority,
Colm Holmes, Chief Executive of General Insurance at Aviva
Besides, professional indemnity insurance is a viable option for many business owners, freelancers, contractors, and individuals. This includes financial companies, accounting firms, engineering firms, surveyors, consultants, and healthcare professionals.
What is the difference between public and professional indemnity insurance?
Getting the right type of insurance policy for your company is essential to protect your business. Not having insurance coverage can lead to complications, such as paying costs out-of-your-pocket, which can break the bank and affect your business operations.
Generally, you have two options: public liability and professional indemnity insurance.
The difference is that public liability covers you when your company or business causes damage to an individual or property if you are liable for the related costs. Whereas, professional indemnity insurance covers you when a client is not happy with your product or service and sues you for the damages.
For example, you have an HVAC company and employ experienced and skilled technicians. One of your clients calls your company for AC repair services. You send a technician to inspect the system, diagnose problems, and fix the AC.
However, when your company’s technician begins fixing the AC system, he makes a mistake and damages the unit. As a result, the AC system catches on fire and damages the client’s property. In such a situation, you will need a public liability insurance policy to cover the damages.
It is also worth noting that you cannot get a no claims discount with these insurance types. No claims discounts typically only apply to car insurance policies.
James Banerjee is an Account Director who graduated from the University of Kent in 2014. He works in SEO on clients such as HSBC UK and Nestle and he has a keen interest in personal finances and money-saving advice.
