Costs in addition vs costs inclusive: how defence costs affect your PI limit

Reviewed by Apex Insurance Brokers · Last reviewed 2026-08-05

Why this distinction matters

Professional indemnity (PI) insurance responds to claims that you were negligent, made a mistake, or breached a professional duty. A real claim has two parts: the amount you may have to pay the claimant (damages or a settlement), and the cost of defending yourself (solicitors, barristers, experts, court fees). Defence costs can be substantial — sometimes rivalling the size of the claim itself, particularly where a dispute runs toward trial.

Your policy has a limit of indemnity — the maximum the insurer will pay, often shown as a generic option such as £1m, £2m or £5m. The question this page answers is simple but important: are defence costs paid on top of that limit, or do they come out of it? The answer changes how much protection you actually have.

Costs in addition vs costs inclusive, side by side

Costs in addition (also called "defence costs in addition to the limit"): The insurer pays reasonable defence costs separately from, and on top of, the limit of indemnity. If you hold a £1m limit and a claim settles at £1m, the full £1m is available for the settlement, with defence costs paid in addition. Your indemnity limit is not diluted by the cost of fighting the claim.

RICS sets the minimum limit of indemnity by turnover: £250,000 where turnover is £100,000 or less, £500,000 between £100,001 and £200,000, and £1m at £200,001 and above.

Costs inclusive (also called "costs-inclusive" or "aggregate limit inclusive of costs"): Defence costs are paid from within the same limit. If you hold a £1m limit, and defence costs reach £250,000 by the time the matter settles, only £750,000 remains for the settlement. In effect, the money spent defending you reduces the money available to pay the claimant — and to protect you from paying the shortfall yourself.

A worked comparison on an illustrative £1m limit:

• Costs in addition: Damages awarded £1m + defence costs £250,000 → insurer pays up to the full £1m for damages, plus the £250,000 costs on top. You are covered for the damages in full.
• Costs inclusive: Damages awarded £1m + defence costs £250,000 → total exposure £1.25m against a £1m pot. The limit is exhausted, and roughly £250,000 of the damages is potentially unfunded, leaving you exposed for the gap.

The pattern is consistent: on costs-inclusive wordings, the harder and longer a claim is fought, the less of your limit survives to actually settle it. On costs-in-addition wordings, the effort of defence does not shrink the protection you bought.

Why costs in addition is usually better for you

For most professionals, costs-in-addition cover is the stronger position, for a few practical reasons:

• Your headline limit means what it says. A £1m limit gives you close to £1m of genuine protection for damages, rather than a figure quietly eroded by legal spend.
• Long or contested claims don't punish you. A robust defence can be the right commercial and reputational choice. On a costs-inclusive policy, mounting a full defence directly reduces the money left to settle if the defence ultimately fails.
• You are less likely to face a personal shortfall. If the limit is exhausted by combined damages and costs, you can be personally liable for the balance. Costs in addition reduces that risk.
• It can help satisfy contractual and regulatory requirements. Client contracts and some professional bodies specify a minimum PI limit. A costs-in-addition wording keeps that limit intact for indemnity purposes, which is often what a contract counterparty really wants.

Costs-inclusive cover is not always wrong — it can appear at lower premiums or in certain classes of business — but you should understand you are buying less effective protection for the same headline number. The right choice depends on your risk profile, contract obligations and appetite. If you'd like this weighed up for your situation, start a PI enquiry with Apex and we'll talk it through.

Where the published rules stand on defence costs

Costs in addition and costs inclusive are market terms, but for some professions the choice is already made by a published rule.

Sources: SRA Minimum Terms and Conditions (sra.org.uk); RICS Professional indemnity insurance requirements 2 July 2025 (rics.org); ARB PII Guidance (arb.org.uk); FCA MIPRU 3.2 (handbook.fca.org.uk). Individual insurer wordings vary and are not summarised here.

How to check which basis your policy is on

Do not assume — the wording controls. To find out how defence costs are treated:

• Read the schedule and the insuring clause. Look for phrases such as "costs and expenses in addition to the limit of indemnity" or, conversely, "limit of indemnity inclusive of costs and expenses".
• Check whether the limit is stated as "any one claim" or "in the aggregate". This is a separate but related point: an aggregate limit is the most the insurer pays across all claims in the policy period, whereas an "any one claim" basis restores the full limit for each separate claim. Aggregate limits combined with costs-inclusive wording can erode protection quickly.
• Note any sub-limits or defence-cost caps that apply to particular sections of cover.

If the language is unclear, ask your broker to confirm it in writing. It is a straightforward question and the answer materially affects how much cover you really hold.

Where fair presentation still matters

Whichever basis your limit is written on, the cover only responds if the policy is valid. Under the Insurance Act 2015, commercial policyholders owe a duty of fair presentation of the risk when buying and renewing cover — broadly, disclosing every material circumstance you know or ought to know, in a reasonably clear and accessible way. Getting your defence-costs basis right is worthless if a claim is compromised because the risk was not fairly presented, so treat both as part of the same exercise when you renew.

Common questions

Are defence costs usually included in the limit or on top?
It varies by wording — there is no single UK rule. Some PI policies pay defence costs in addition to the limit; others treat the limit as inclusive of costs. You have to check your specific schedule and insuring clause to know which applies to you.

Which is better, costs in addition or costs inclusive?
For most insureds, costs in addition is more protective, because your full limit of indemnity remains available for settlements and is not eroded by legal spend. Costs-inclusive cover can cost less but gives you effectively less protection behind the same headline limit.

Can defence costs really exhaust my limit?
On a costs-inclusive policy, yes — if defence costs and damages together exceed the limit, the cover can be used up, and you may be personally liable for any shortfall. This is a key reason to understand your policy's basis before a claim arises, not during one.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This guide is general information, not advice on a specific policy or a substitute for reading your policy wording.