Professional indemnity insurance — questions answered
What this page covers
Direct answers to PI insurance questions for UK freelancers and limited company contractors — what it covers, whether you need it, how much it costs, the difference between PI and PL, run-off cover, and how to claim it as a tax-deductible expense.
What is professional indemnity insurance?
Direct Answer
PI insurance protects you if a client claims your professional work caused them a financial loss. It covers your legal defence costs and any compensation awarded. For contractors providing professional advice or services, it is one of the most important business protections available.
Do I need PI insurance as a contractor?
Many clients require PI insurance in the contract — particularly in IT, finance, engineering, consulting, and creative fields. Even where not required, it is strongly recommended for any contractor providing professional advice or services. A single claim without cover could result in legal costs and compensation running to tens of thousands of pounds. The standard minimum is £1 million cover.
What is the difference between PI and PL insurance?
Covers claims from your professional work — advice, services, or expertise that a client says caused them a financial loss.
Example: a client claims your code caused a system failure costing them £50,000.
Covers claims from your physical presence — injury to a third party or damage to their property.
Example: a client trips over your laptop bag at their office and breaks their wrist.
Most contractors need both. They are often sold together as a combined policy.
How much does PI insurance cost for a contractor?
| Sector | Typical annual cost (£1m cover) |
|---|---|
| IT and software contractors | £150–£250/year |
| Management and business consultants | £200–£350/year |
| Engineering and technical contractors | £200–£350/year |
| Finance and accounting contractors | £250–£400/year |
| Creative and marketing contractors | £150–£250/year |
| Public liability add-on | +£50–£100/year |
Compare at least three quotes annually — premiums vary significantly between insurers.
What does PI insurance cover?
Legal defence costs
Compensation if claim upheld
Professional negligence claims
Errors and omissions
Breach of contract claims
Defamation and IP infringement
Deliberate wrongdoing or criminal acts
Personal injury (that's PL)
Claims before policy start (check retroactive date)
Claims after policy cancelled (without run-off)
Is PI insurance tax deductible?
Yes — PI and PL insurance premiums are fully deductible business expenses for a limited company. Pay from your company bank account, record as business insurance. On a £300/year premium at 19% corporation tax, the effective cost after relief is approximately £243.
What is run-off insurance?
Important if you're closing your company or going permanent
PI insurance is claims-made — it only covers claims made while the policy is active. If a client makes a claim two years after you finished a project and your policy has lapsed, you're not covered. Run-off insurance covers this gap. Most specialist contractor insurers offer it. Essential if you're closing your limited company.
Where should I get contractor PI insurance?
Specialist providers for UK contractors include Qdos, Kingsbridge, and PolicyBee — all offer combined PI and PL policies designed for limited company contractors. General business insurers like Simply Business and Hiscox also cover contractors. Always compare at least three quotes and check the retroactive date, what professional services are covered, and the claims process.
What should I look for in a contractor PII policy?
Four things matter most. First, the retroactive date — this is the date from which the policy covers past work. The earlier the retroactive date, the more of your historic work is protected. Second, the definition of professional services — make sure your specific type of work is explicitly covered, not just described generically. Third, the excess — most policies carry an excess of £500–£2,500. Choose a level you could pay without cash flow problems. Fourth, the claims process — check how to make a claim and whether a specialist handler is assigned. Cheap policies often have slow, difficult claims processes.
What happens if I forget to renew my PII policy?
A gap in cover means any claim made during the uninsured period is not covered — even if the work was done when you were insured. PII operates on a claims-made basis: it covers claims made while the policy is active. If a client discovers a problem with work you did three years ago and makes a claim while your policy has lapsed, you are personally exposed. Set a renewal reminder 60 days before your policy expires and never let it lapse, even between contracts.
Can I get PII mid-contract?
Yes — you can buy PII at any point. However, most policies have a retroactive date which limits cover for past work. A policy bought mid-contract will typically cover claims arising from work done after the retroactive date, which may be the policy start date unless you negotiate otherwise. If your contract requires PII to be in place from day one, a policy bought after you have started work may not satisfy that requirement. Some clients will also ask to see proof of insurance before work commences.
Does PII cover IR35 investigations?
No. PII covers professional liability claims from clients — it does not cover HMRC investigations into your IR35 status. IR35 investigation cover is a separate product, often called IR35 insurance or tax investigation insurance, offered by providers like Qdos and Kingsbridge. Some contractor accountancy packages include a level of investigation cover. If you are concerned about IR35 exposure, ask your accountant about dedicated IR35 insurance.
What is the difference between run-off cover and an extended reporting period?
Both protect you after you stop actively contracting, but they work differently. Run-off insurance is a standalone policy that covers claims arising from past work for a defined period — typically 2, 3, or 6 years. You pay a one-off premium when you stop contracting. An extended reporting period (ERP) is an add-on to your existing policy that extends the window in which you can report claims after the policy ends. Run-off cover is generally better as it provides a fresh policy period rather than relying on the terms of your expiring policy. If you are closing your limited company or taking a permanent role, always discuss run-off cover with your insurer before cancelling.
Do I need PII and public liability, or just one of them?
Most contractors need both. They cover different risks and are not interchangeable. PII covers financial loss claims from professional work — a client saying your advice, code, or service cost them money. Public liability covers physical injury or property damage — a third party being hurt or their property being damaged because of your business activities. Many specialist contractor insurers sell them as a combined policy at a discounted rate. A combined PI and PL policy for £1m/£1m cover typically costs £200–£400/year total — less than buying them separately.
Check your IR35 status too
Insurance requirements depend partly on your working arrangements. Use our free 15-point IR35 checklist to assess your contract in 5 minutes.
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