Many people are confused when confronted with a discussion about personal indemnity insurance or professional indemnity insurance but the concepts involved are pretty straightforward and easy to understand.

Indemnity insurance is put in place to protect against the risk of significant financial loss as a result of any damage or injury that the policyholder might cause to a third-party. In its simplest terms, this insurance protects you from financial loss if you are sued by a third-party and you are held liable for damages.

In addition to paying for any damages, the insurer will normally cover any legal expenses for the insured in defending any legal action and will assist in mounting a vigorous defense and in recovering costs from the plaintiff if the insured is found not liable.

There are generally two types of indemnity insurance that most individuals will need to consider, personal and professional.

Professional insurance is designed to protect professionals such as doctors, lawyers, consultants, etc… against damages caused to clients as a result of their actions or inaction and is often referred to as Errors and Omissions Insurance. In this case, the insurance company indemnifies the professional against any legal liability as a result of an omission or error on their part while performing work for a client which results in the client suffering a loss.

Personal insurance works in much the same way except that the causes that would lead to needing the insurance has nothing to do with delivering work to clients but rather has to do with individuals being in some way negligent and this negligence causes harm to a third-party. An example of this might be a case where a tenant injures themselves as a result of an action or inaction on the part of the landlord or a child is injured as a result of you leaving a gate open to a swimming pool. As with professional indemnity insurance, the insurance company would cover the insured for any losses and would also pay for legal fees and assist in the defense.

As our society becomes more and more litigious it becomes more and more important to have indemnity insurance in place and of a sufficient amount to cover any possible legal fees and losses should you be sued. Make sure to discuss your coverage every year with your insurance representative.