Professional Indemnity insurance
No-one starts a project hoping for it to go wrong, but it still can. There are so many ways it can happen.
Even if you’re a total pro. Even if you’re using a contract.
Having an active professional indemnity insurance policy is one of the best ways to protect yourself.
What is professional indemnity insurance? #
The exact cover given by a professional indemnity policy will vary from provider-to-provider. In general, it’s there to protect you if a client sues you or tries to recover compensation or damages.
However unlikely, it’s not impossible and a policy gives you some peace of mind. If you’re sued and have professional indemnity insurance in place, insurance gives you the weight of a legal team to handle the case.
That should protect you financially and – more importantly – reduces the chance you’ll end up spending a lot of time on a potentially stressful case.
Most professional indemnity providers give you the option to add public liability and contents insurance, too. These are separate and additional policies to consider:
- Public liability: Covers you for accidents (i.e. something you do causes you to accidentally break a client’s arm)
- Contents: Covers your business items (laptop, phone, etc). Items used for business use are often excluded from home contents insurance policies
We’ll look at a couple of examples later in this section of the guide, but let’s address some common objections to insurance.
I can’t afford it #
Professional indemnity insurance doesn’t have to be expensive. Many insurers provide cover from as little as £15/month.
When you factor in potential opportunity costs, you could argue you can’t afford not to have professional insurance. It’s a cost of doing business and should be factored into rates.
With Jack’s average professional indemnity claim is £10,000. That’s a lot of money to have to find at short notice.
I can just refund clients #
You can refund clients, but here’s the rub: the client might
sue you for opportunity costs. For instance, a delayed website launch
could caused a client to lose revenue.
In any event, there would be legal costs to consider (yours and your client’s) on top of any project fees.
The client could be suing for substantially more than the original cost of a project. Professional indemnity insurance should cover you against this.
I’ve never had an issue before #
Saying you’ve never had a problem before and therefore don’t need insurance is similar to saying you’ve never had a car accident so don’t need to wear your seat belt. I’ve never had a car accident, but I still take preventive measures when driving and buckle up just in case.
Other considerations #
Client behaviour #
Professional indemnity insurance is often sold around protecting freelancers against mistakes they make or missing deadlines. This can happen, of course.
However, a bigger factor is clients who threaten to sue – legitimately or otherwise. That might be as a result of a disagreement over scope creep, unreasonable changes to deadlines, or anything else that could go wrong.
Even if a client
doesn’t formally sue you, they might imply they’ll take things
further if you don’t do as they say. That’s when the insurer should be informed as they might be able to help diffuse the situation.
This is completely out of your control. You can’t screen against it, but you can insure against it.
‘Worldwide’ policies #
Many professional indemnity insurers that provide ‘worldwide’ cover explicitly exclude the US and Canada from their policies. That’s because these countries are seen to be particularly litigous (i.e. clients are more likely to sue).
It’s usually possible to add a policy extension to cover these areas, but it is likely to significantly increase the cost of the policy.
Note that even if you don’t directly work with clients in these countries, you may need to take a policy out. A good example of this would be if you work through platforms that are based in the US (e.g. Upwork).
It’s worth checking with your provider: the last thing you want is to think you’re covered, only to discover you’re not when it matters most.
Backdating policies #
If you started freelancing a while ago but haven’t taken insurance out, you might be able to backdate your policy. That means you’re covered for work you previously completed, as long as there’s no reason to believe you’re likely to be sued by those clients.
Your insurance has to be active to cover you #
That might seem obvious, but in practice that means you’ll need insurance to remain in place after you wind down your business, for a few years at least.
You could be left in a tricky situation if you stop trading (as a sole trader), deactivate a policy and then a client takes action.
Don’t refund first! #
A common misconception is that once a policy is in place, you can offer a refund then claim the money from the insurer. This is not how insurance works!
If a client is pushing for a refund, you can push back on the grounds that you have adhered to the agreed terms. If they decide to take things further, your insurer can step in and help.
If you suspect a project is going awry, contact your insurer as soon as possible. They should be able to advise you on the next steps to make sure you’re covered by their policy.