Professional liability - All information about your insurance

What exactly is professional indemnity insurance?

This form of insurance primarily protects professional groups where mistakes can lead to serious financial or health consequences for third parties. For example, if a tradesman accidentally damages a water pipe and floods a house as a result, the damage can be very high. This insurance is also very important for professional groups such as doctors, architects or lawyers, as their work carries a high risk of causing damage.

For the following professional groups, professional liability insurance must be taken out in order to exercise a self-employed activity:

• Doctors

• Lawyers

• Notaries

• Accounting professions

• Public accounting professions

• Civil engineering professions

• Clinical psychologists, health psychologists & psychotherapists

Regardless of any legal obligation, professional liability insurance also makes sense for other professional groups. As soon as the professional activity involves a risk of causing physical or financial damage to third parties, it is advisable to insure yourself. This can secure your livelihood, as mistakes can often have expensive consequences. For this reason, self-employed or freelance professionals in particular should consider this form of insurance.

What is covered by professional indemnity insurance?

This insurance covers damage caused by professional services or activities, in particular

Personal injury: If, for example, customers slip in business premises, in the worst case scenario this can result in damage to their health.

Property damage: If, for example, a pipe is accidentally damaged during installation work and water damage is caused, the property of third parties can be destroyed.

Financial losses: Incorrect advice or an error in professional services can result in financial losses for customers.

There are also insurance policies that cover defense costs, damage caused by employees or pure financial losses such as faulty software development. It is best to find out exactly what benefits are included in the professional indemnity insurance you want to take out.

What costs should I expect?

How much you have to pay for your professional indemnity insurance depends on various factors. Here are a few pointers as to which individual factors can raise or lower the premium:

1. High risk: The higher the risk, the higher the premium. For high-risk levels such as doctors, lawyers or building contractors, annual premiums can range from a few hundred to several thousand euros.

2. High sum insured: Here too, the higher the sum insured, the higher the premium. It is best to carefully weigh up how much risk you are willing or able to take personally.

3. Deductible: If you want to take on a higher risk with a higher sum insured, you can reduce your premium with a higher deductible.

   1. Amount: For smaller companies or freelancers, deductibles in the range of EUR 250 - 1,000 are common. Large companies can also choose higher deductibles in order to reduce the premium.

   2. Flexibility: Many insurance policies allow you to adjust the amount of the excess individually. Find out the details so that you can make a good decision.

   3. Application per claim: Make sure that the deductible is often applied per claim. (e.g. several parties in a house make a claim for water damage.) In this way, the insurance only takes effect if individual claims exceed the deductible.

4. International cover: If you want to take out professional indemnity insurance across national borders, it can cost more than if you only insure yourself domestically.

What should I look out for?

You should check exactly which risks and types of damage are covered by your insurance. The sum insured and any deductible should be tailored to your individual needs.

Pay particular attention to exclusion clauses. These specify which damages are not insured. If one of these points is important to you, ask about alternative options. Also ask whether your contract can be adjusted if your needs change. The following losses are generally not covered:

Is the premium for professional indemnity insurance a business expense?

As a rule, the premium counts as a business expense as it is directly linked to your professional activity or business. You can therefore generally deduct the partial amounts from your taxes. It is best to inform your tax advisor of the premium amount so that everything can be recorded correctly in the accounts and submitted in the tax return.

What are the advantages and disadvantages of professional indemnity insurance?

You can protect yourself against financial loss with professional indemnity insurance, but there are also costs to consider. We have summarized some advantages and disadvantages for you.

What do I need to bear in mind when canceling my insurance?

The conditions and deadlines depend heavily on your individual agreement with the insurance company. Here we summarize the important points that you should always bear in mind:

• Check the notice periods, which are often at least three months.

• Check the conditions for extraordinary termination. An increase in premiums without an adjustment to benefits or other changes to the contract may justify early termination.

• It is always best to give notice in writing by letter or e-mail to have proof. Make sure you include all important information and adhere to deadlines.

• Check whether extended liability insurance makes sense. This is often important for professions with long-term liability risks.

• If you change your insurance, do not cancel it before the new insurance cover takes effect.

• If you are unsure, it is best to seek advice from an independent insurance broker.

What is the difference between professional liability and public liability?

These two types of insurance differ in terms of the scope of protection and the target group. Professional liability insurance is aimed more at freelancers or specific professional groups. Public liability insurance tends to be used by companies and tradespeople who want to protect themselves against broader risks in the course of their business activities. Below you will find the most important differences:

Target group

Professional liability: This insurance is primarily aimed at freelancers such as doctors, lawyers, architects, tax consultants and engineers. This insurance is also mandatory for certain professional groups whose work involves a high risk.

Public liability: This insurance is primarily intended for companies and tradespeople such as craft businesses, trading companies or production facilities.

Scope of protection

Professional liability: The insurance primarily covers damage caused by errors or omissions in the course of professional activity. This relates primarily to financial loss, personal injury and property damage caused by professional performance.

Public liability: The insurance mainly covers damage caused to third parties in the course of day-to-day business operations. This primarily relates to property damage and personal injury caused by business activities.

Am I more likely to get a loan with voluntary professional indemnity insurance?

Indirectly, the existence of professional liability insurance can influence the decision of your bank or lender. You demonstrate financial stability and a sense of responsibility by actively minimizing your risk. You show operational continuity and reliability, as the insurance can be an indication of the long-term existence of your company.

So if the granting of a loan depends on several factors, professional indemnity insurance can be a decisive factor in the overall assessment.

What do I do if I need a business loan and get a rejection from the bank?

If you cannot get a loan from the bank despite having or not having professional liability insurance, a pawn loan may be an alternative for you. All you need is collateral or, for example, a fleet of vehicles that you can use as security.

Advantages and disadvantages of a pawn loan:

Conclusion: A pawn loan is a very good short-term financing option.