Public liability insurance vs professional indemnity insurance: what is the difference?

Public liability (PL) and professional indemnity (PI) insurance both protect self-employed professionals against compensation claims, but they cover very different risks. Understanding the distinction is essential for making sure you have the right cover in place.

In short: PL insurance covers claims from members of the public for injury or damage to their property caused by your business. PI insurance covers claims from clients alleging that your professional work, advice or services caused them a financial loss.

For a broader overview of the cover available to freelancers and contractors, read our guide to freelancer and contractor insurance.

PL insurance covers you if someone suffers an injury or has their property damaged as a result of your business activities. This could be a client, a supplier, a delivery worker or a passer-by. It covers your legal defence costs, any compensation payments, medical costs and in some cases loss of income arising from the claim.

PL insurance is not a legal requirement, but many contracts stipulate it as mandatory. Even where it is not required, any self-employed professional who meets clients or suppliers in person is exposed to the risk of an accidental claim.

A customer visits your workplace and slips on a liquid spillage, breaking their wrist as they fall. They claim against you for the earnings they lose during their recovery.

You are working as a contractor at a client's premises. A visitor trips over a power cable connected to your laptop, injures themselves and makes a compensation claim against you.

A client falls down some stairs on your business premises, suffers a muscle injury and claims against you for rehabilitation costs and time off work.

PI insurance covers claims made against you by a client who alleges that a professional error, piece of poor advice or sub-standard work caused them a financial loss. It covers your legal defence costs, compensation awarded to the claimant, any costs to rectify the issue and loss of income as a result of the claim.

For a detailed look at the types of claims that can arise, read our article on common PI insurance claims against self-employed professionals.

PI insurance responds to a range of professional risks, including:

• Professional negligence, such as making a mistake in client work or giving poor advice that causes a financial loss
• Unintentional breach of confidentiality, for example sharing client data or candidate information without permission
• Unintentional breach of copyright, such as using a rights-managed image without a licence
• Defamation or libel, where a false statement causes reputational damage to a client or competitor
• Loss of data or documents for which you are responsible
• Loss of money or goods in your care

Neither policy is a legal requirement, but both are commonly required by clients as a condition of contract. Whether you need one or both depends on the nature of your work.

If you provide professional services, advice or designs to clients, you are exposed to negligence claims and should carry PI insurance. If you also meet clients, suppliers or members of the public in person, you need PL insurance too.

IT contractors, business consultants, graphic designers, web designers, bookkeepers, accountants and financial advisers typically fall into this category. The complexity of their work creates PI exposure, and the fact that they often work on client premises or host clients creates PL exposure.

Self-employed shopkeepers, newsagents, grocers and tradespeople such as plumbers, electricians, builders and decorators work on or welcome people into their premises regularly, making PL insurance important. Because they do not generally provide professional advice or designs, PI insurance is less likely to apply to them.

Every situation is different, so if you are unsure which cover you need, IPSE members can get guidance through our tax and legal helplines.