Professional Indemnity Insurance: Learning the Language

What is Professional Indemnity Insurance?

Everybody makes mistakes – therefore covering yourself and your business is absolutely essential.

Professional Indemnity Insurance helps to provide cover for any legal costs or expenses that are incurred when defending claims of inadequate advice, services or designs to a client. It will also generally cover any compensation required to be paid to the client in order to rectify the mistake.

The types of business that regularly take out professional indemnity insurance include anyone from accountants and IT consultants to journalists, architects and financial advisors.

Small but Important

The fine print within your policy wording is incredibly important. You should always make sure that you’re familiar with it so try to make the time to read through it.

Not only will it help you to know exactly what you’re covered for, it’ll leave you better prepared to react to any claims as and when they do arise. Alongside this, the fine print will clearly state your own rights and what you are entitled to and protected against.

Many people find the language used in policy wording extremely confusing – however there are many resources you can use and websites that offer jargon free definitions and explanations like this page here.

Points to look out for in your Policy Wording:

Insurance Policy

Always ensure that you are covered for (at least) the following:

  1. Professional negligence (this usually involves making a mistake in a piece of work or in a service for or offered to a client – remember, everybody makes mistakes and it’s far better to admit this and be covered for it rather than simply assuming it won’t happen to you).
  2. Loss of important documents or data – again, this can happen to anyone at anytime so always be prepared. Insurance companies will require you to have appropriate measures in place such as secure storage of data – whether on or offline.
  3. Breach of copyright and/or confidentiality (even breaches that are unintentional still require extensive court cases and claims processes so insurance yourself against any potential action that could be taken against you )
  4. Defamation and libel (these type of claims can be particularly expensive so ensuring that you’re covered could save you financially)
  5.  Loss of goods or money (this can be either your own or simply money that you are responsible for)


It really is important that you totally understand the language of your policy wording before you make a decision on whether or not to take out an insurance policy.

A few minor oversights by your insurance broker or by the insurance company could end up costing thousands of dollars in your premium cost, or when it comes time to make a professional indemnity claim.

Having the wrong figures could be the difference between a happy claim situation, or bankruptcy. So much sure that you understand the language of your policy wording – it could save you big dollars in the long run!

A more comprehensive explanation of the language of a policy wording can be found in this video below:

Policy Wording: Small? Maybe Important? Definitely

What is a policy wording?

Policy wording relates to the information contained within any given insurance policy.

It often comes in two parts.

The first will concentrate largely on information regarding the insurance company’s policies in general, whilst the second will focus more specifically on the exact product that you have purchased – whether that’s car, boat, home or any other type of insurance package.

APRA has more information relating to the Australian general insurance legislation here.

The Important Parts

It’s crucial that you take the time to get to know the underwriting criteria of the insurance company that you choose. This criteria is basically a set of guidelines that the company will use to calculate risk – they do this by taking a variety of factors into consideration, which helps them to determine what they are able to offer to you.

It’s also important that you understand about the different types of insurance – for example; if you’re looking to insure your vehicle, research and find out which type of vehicle insurance covers you best.

Types of vehicle insurance include

  • Comprehensive
  • Third Party Fire and Theft
  • Third Party Property Damage

So it’s true. I really should read the small print?

Absolutely. Although it may seem tedious, you’ll very likely save yourself time, money and potential disappointment if you take a few extra minutes to read through the small print.

For example:

If you’re buying travel insurance, make sure you know what you’re covered for. If you don’t check your policy wording, you may reach a point where you need to put in a claim and then realise that you’re not in fact covered for expensive lost luggage or last minute flight cancellations.

Often, they’ll be exclusion periods detailed in the policy wording – these mean that you may not be able to claim on the policy during the first two weeks of a new deal.

The policy wording will also provide you with information about excesses that you may incur – these relate to the amount that you have to pay each time you make a claim therefore knowing about them in advance could help you to weigh up potential costs.

Reading the small print helps you to be a savvy consumer. You not only find out what the insurance company will and will not do for you, but also what you yourself are entitled to or when you may be able to make a complaint or assert your rights.

Anything else?

To ensure that the policy wording is as accurate as possible, insurance companies need to know as much as possible about you. You’ll find details of this in the Duty of Disclosure – however it generally refers to the need for you to be open in offering the optimal and entirely honest information about your personal circumstances and situation.

The Australian Treasury department has more information about Duty of Disclosure’s here:

Information should always be given in this way – whether you’re taking out insurance with the company for the very first time, or extending, renewing or changing your policy within the same company.