Shopping for insurance as a contractor can be time-consuming, taking precious hours away from your actual work. Comparison websites don’t always show the best deals on offer (although they do a great job of marketing it that way) and can actually add to your confusion even more.
Oftentimes, the deciding factor when taking out cover is, of course, price. When it comes to your crucial business insurances like Professional Indemnity, the cheapest option may not cover you entirely though.
Do I really need PI insurance?
Whilst Professional Indemnity (PI) insurance isn’t a legal requirement, it is usually a staple in client contracts – meaning you might find it hard to win work without it. You can read all about PI insurance here but for the sake of convenience, we’ll pause to provide a quick overview.
Professional Indemnity protects you as a contractor from the financial repercussions of making a mistake. No matter if you’re a freelancing veteran or have only just made the leap to self-employment, everyone is capable of simple human error - whether it’s a small miscalculation in building plans or some misguided investment advice, it could result in a hefty claim.
You also don’t necessarily have to make a mistake to cop a claim; it could be the result of an accident or events out of your control. Let’s give an example:
As an IT consultant and software engineer, a client supplies you with a file containing thousands of their customers' personal data for input after building a new database backend. Your house gets broken into and your laptop is stolen, including all of the sensitive data it currently contains. You could be looking at a sizable PI claim should any of that data be used, as well as damages and loss of business compensation for your client after having to tell their customers about the stolen data.
It’s easy for risk to become a reality, so it’s important to get the right level of cover. Choosing the cheapest insurance may not give you full protection.
How do I work out how much PI cover I need?
If you’re not going for the cheapest insurance, how do you choose your cover?
You should start by assessing exactly how much protection you need from your PI insurance. Insurance advisers can help you finalise your decision, but it’s important you have some idea of the level of cover you need. All sorts of variables could affect this: whether you work in the public or private sector, whether your client is national or local, and to what extent you work with personal or sensitive data are just a few.
As a general rule of thumb, the level of PI cover you take out should be directly proportionate to the biggest client you work with.
Imagine the worst mistake you could make in your job. How much would this mistake cost you to set right? What amount of compensation for loss of business or data retrieval would you have to pay? How much would it cost you in legal fees to defend yourself at trial and how much would your losses amount to while you’re out of work, or even losing work due to a damaged reputation? That total will be significantly lower than what you should take out as Professional Indemnity cover.
With PI insurance, a limit of £1m is typically required at the very least, with other common limits sitting at £2m and £5m. You’ll easily find cover starting from £250,000 (suitable for start-ups and small businesses) but we strongly advise you over-insure; if the level of cover taken out isn’t sufficient for your requirements, then you’ll be liable to pay the remaining amount.
What can Larsen Howie offer me?
Here at Larsen Howie, we offer PI insurance for a range of professions which you can read about here. Our premiums start at just £144, including retroactive cover, and we offer the option to reduce your excess from £500 to £0 for a nominal additional fee.