We write guides on how to traverse the inhospitable landscape of IR35 frequently but there are other insurances you should definitely consider as a contractor, one of which is Professional Indemnity cover. While being your own boss has a lot of perks, there are many potential downfalls too - like repercussions for simple human error.
Even the most diligent contractors are held accountable when things go wrong, so what can you do to protect yourself when the worst happens?
What is Professional Indemnity insurance?
Professional Indemnity insurance – often referred to as PI insurance – protects you as a contractor should your client allege that you’ve provided inadequate advice, services or designs. It covers legal expenses in defending the claim as well any compensation needed to fix the problem.
While you may have complete confidence in your abilities, knowledge and skill set, you’re still human. There’s always a possibility that you, an employee, or fellow contractor sent on your behalf could make a mistake, which falls to you as the contractor to correct.
Luckily, professional indemnity insurance covers a range of scenarios, including:
- professional negligence (i.e. making a mistake in a piece of work for a client)
- loss of documents or data
- unintentional breach of copyright or confidentiality
- defamation and libel
- loss of goods or money (your own or for which you are responsible).
Am I required to have Professional Indemnity insurance?
While it’s not illegal to work without it, it’s considered an industry formality that you, as a contractor, are required to have Professional Indemnity insurance.
Clients want to ensure that any errors made lie with the contractor that provided the services to fix. Understandably, they don’t want to pay for any mistakes they aren’t liable for; because of this, clients are often reluctant to hire a contractor who doesn’t have the correct Professional Indemnity insurance. Some will even write it into your contract, so it’s advisable to have it in place ready.
It’s also a good idea to keep yourself covered from the list of possible problems above. Without it, you could end up paying thousands in compensation as well as your own legal fees, which can grow to be incredibly expensive. Affording this can quickly become unmanageable, especially on top of profit loss while you’re away from work defending the claim.
Professional Indemnity offers peace of mind which is invaluable, no matter how scrupulous you are in your practice.
How do I know what Professional Indemnity cover I need?
Regardless of if you’ve been contracting in your field for 20 years or you’ve just won your first client, it’s largely impossible to know what might occur during your next project. One small mistake or a momentary lapse of concentration could give rise to a claim either immediately or further down the line.
Clients will often dictate a minimum indemnity limit in their contract, depending on how large or small the job is. It’s usually the same for industry bodies too so it’s advisable to make sure your limit satisfies your clients' specifications before taking out cover.
If you don’t have any client expectations to meet, however, take a worst-case-scenario approach. If you were to make a mistake, how much would it cost you to put it right for the client? How much would it cost you in legal fees and how much would it cost your business in losses? Do some research into cases in your profession and remember that it’s better to overestimate.
Find out about the PI insurance we offer here.