The Difference Between Professional Indemnity and Income Protection Insurance

Professional indemnity insurance, also referred to as professional liability or errors and omissions insurance, provides protection to individuals and companies involved in providing advice or services to customers.

This insurance is designed to cover legal costs as well as claims for damages by third parties arising out of an act, breach or omission during the course of discharge of their professional duty.

This type of insurance is extremely important for white collar consultants and other professional people who give advice as giving the wrong advice can be devastating for clients and those affected. The best way to ensure you are covered is to get a few professional indemnity insurance quotes as that way, you will be able to compare different levels of cover, and make sure you get the right policy for you and your business.

Income Protection Insurance, formerly referred to as permanent health insurance, is a monthly benefit. If you are not in a position to work because of an accident, injury, illness or trauma, then this insurance pays you to help you meet the day-to-day living expenses.

Professional Indemnity Insurance

professional indemnity insurance australia

The primary reason as to why you should have professional indemnity coverage is that the general liability insurance provides coverage in the event of a property damage, bodily injury, advertising injury or personal injury claim.

Other insurance policies provide coverage to the public and employers and for product liability. Products and professional services may not cause any of the specified harms, but can result in other legal claims.

Commonly, professional indemnity insurance covers damages, compensation, interest and costs and defence costs arising out of claims of misrepresentation, negligence, violation of fair dealing and good faith and inaccurate advice.

In general, the types of claims covered by professional indemnity insurance are as follows:

  • Libel, defamation or slander against third parties
  • Loss of documentation of clients
  • Legal liability for damages
  • Claimants’ costs/expenses caused by an act, error, omission
  • Wrong or inadequate advice given to customers
  • Acting in the absence of proper instructions or failing to act according to the customers’ instructions
  • Failing to provide advice to customers
  • Breach of Fair Trading Legislation or Trade Practices Act
  • Breach of statutes

Income Protection Insurance

income protection insurance

Income protection insurance pays you till you report back to work (after the specified waiting period). However, if you are incapable of returning back to work, payment is given to you till your retirement age, generally 65, depending on your occupation.

This insurance is designed to make sure that you are paying the mortgage, putting food on your table and able to carry on till you return to your work.

An income protection insurance policy offers several benefits when compared to other insurance policies. The benefits are paid to the policyholder when he/she becomes incapacitated.

However, the payment is made after the deferred period, but continues until recovery of health, retirement, death (as per the terms of the contract), whichever happens earlier.

The insurance company pays the benefits regularly and they cannot refuse to renew or cancel the policy as long as you continue to pay the insurance premiums.

Some of the restrictions to this policy are as follows:

  • The insurance company will not pay if you become unemployed because of reasons other than accident or illness.
  • The deferred period generally ranges from 4 weeks to as much as 52 weeks.
  • Benefits are not payable if accidents or illnesses arise out of alcohol or drug abuse, criminal acts, wars, pregnancy and intentional self-harm.
  • If you change your occupation or become unemployed, the insurance policy may not be valid. Sometimes, you may be required to pay a higher premium to cover the new risk.

If you are a professional who provides advice or running your own business, it is important to have both professional indemnity insurance and income protection insurance.

This is because they provide some protection to your earnings in the event of third party damages claims or you becoming incapacitated because of an illness or accident.

For more information about the differences between PI insurance and Income protection, check out the insurance information resource acay.com.au as this site provides a free quoting and advice resource for any professional seeking insurance.

Key Man Insurance Cover

The other major type of income protection and personal insurance is known as key man insurance and can be extremely useful if your business relies heavily on the efforts of one key or hard to replace person.

We at Chicagotappi, believe that this type of insurance cover is extremely important for small businesses, particularly partnerships or family owned business who rely on the production on one or two really important people to make their money.

Who Needs Keyman Insurance?

We came across an article recently which gives some excellent background as to what key man insurance is, how it works, and who should consider taking out a policy. You can find their detailed post at http://www.webberwealth.com.au/key-person-insurance.

The basic premise of how it works is that you take out an insurance policy to cover the business financially in the event that an important money earner (or person with a lot of intellectual property) can no longer work. The key man policy will kick in and start paying the business to cover the lost income resulting from this person being unable to perform their usual duties.

So for fellow Chicago residents, this would be like the Bulls taking out an insurance policy to get paid their loss of income resulting from Derrick Rose’s knee injury last year. They would have received a benefit from their insurance company to cover the financial and other costs due to the loss of their key person.

You can see how important one person can be to a team or a company, and if you don’t have an keyman insurance policy in place to cover yourself, then you could end up losing a lot of money, or even worse, having the business shut down and go bankrupt.

These types of policies can be relatively expensive when compared to car insurance or other more commonly taken out products, but compared to the risks of not having a key person policy, the outlay is well worth it.

Keyman Insurance

Different Types of Income Insurance

We all know insurance can be extremely beneficial to people who take it out, especially if they end up making a claim. This is no different for people seeking to insure their income, otherwise known as income protection insurance.

There are several types of insurance policies available for this type of personal insurance, and the level of cover and overall costs differ depending on your individual circumstances and income level.

The best thing about income protection insurance is that it typically usually pays a monthly benefit of up to 75% of the person’s income. Other types of personal insurance such as TPD insurance cover you should you become disabled permanently.

The other major type of cover is called trauma insurance which will cover you should you happen to be diagnosed with some kind of medical condition including serious illnesses such as cancer, or undergo a procedure outlined in your policy.

Death insurance can be useful for a wide variety of people of different ages but is especially handy for parents with children.

How do you know when you need this type of insurance? Well, the first question to ask yourself is what will happen to your family and your assets if you were to lose your or your partners income. If you don’t have enough money or assets to cover your loan or mortgage repayments, then you should really be looking at taking out a policy.

If something were to happen to you, how would the mortgage get paid, and how would your family pay for the weekly groceries? It really does pay to make sure you have sufficient insurance to cover for your loss of income.

2 Types of Cover

There are two types of cover available for income protection. The first is indemnity value  which is the cheaper and more traditional option which is based on your income at the claim time.

This is best for people with a steady income.

The other type is known as agreed value which is the most expensive option. The benefit is paid out on an agreed income and is not affected by changes in income.

This is best for self employed or those with a variable income.