We suspect that many other sole traders and small IT businesses are in that same mental boat.
If you’re a freelance IT consultant or contractor, you’ll be doing your best to make sure you provide the best service. However, sometimes things go wrong and it’s only human to make mistakes. A disgruntled client or third party could sue you if they think you've done something wrong. Even if you haven't..You could be liable for the legal fees and any compensation costs.
So, stop thinking like a faux- employee and start thinking like a business.
What is Professional Indemnity insurance?
Professional indemnity insurance, often referred to as PI insurance. Covers legal costs and expenses incurred in your defence, as well as any damages or costs that may be awarded, if you are alleged to have provided inadequate advice, services or designs that cause your client to lose money.
Who needs PI cover?
Freelancers, consultants, contractors and subcontractors should have PI insurance, along with anyone else who provides services, advice, ideas or designs for clients. If there’s a chance you may inadvertently give bad advice, or unknowingly infringe copyright, you should look into having this cover. PI insurance will help provide for legal costs and settlements made against you so it’s really important. Professions that might need professional indemnity insurance include (but are not limited to):
- Management and business consultants
- IT professionals including IT contractors, consultants, programmers and developers
- HR and Training consultants
- Accountants
- Freelance Media and Marketing consultants
There are certain professions where it’s compulsory to have PI insurance, such as accounting, architecture, town planning, surveying and law. The professional bodies of these industries will insist on a minimal level of PI insurance. However, even if PI insurance isn’t mandated, it’s still important to consider if you can afford not to have this cover.
Is it relevant to small businesses?
PI insurance is absolutely relevant to small businesses, along with freelancers and contractors. Your client may well be relying on advice your small business has given. If that’s found to be faulty somewhere down the line or incorrect processes have been followed, the client might come back at your small business with a claim for any losses they’ve suffered as a result. It’s vital that small businesses look into PI insurance; it’s when you are most vulnerable and least likely to have cash reserves to meet legal costs or payouts.
Does having PI give your business a competitive advantage?
I believe that having PI insurance does give your business a competitive edge. Service-based businesses pitching themselves to secure contracts are certainly seen as more attractive for having PI insurance – showing you’ve thought about it demonstrates that you’re responsible.
Do I need PI insurance if I already have public liability insurance?
Public liability and professional indemnity insurance do different things, so you may need to take out both. Public liability covers you for any claims that people make against you in the event of accident, injury or illness – such as a broken leg, as we’ve touched on previously, PI insurance covers you for ideas, advice or designs. It is entirely appropriate for businesses to have both kinds of cover.
How can I calculate the level of PI insurance I need?
It’s worth talking to similar sized businesses, as well as colleagues and clients to see what kind of cover they have. You need to think about what might potentially go wrong and how much, ultimately, you could be on the hook for. If you give advice to a client that goes wrong, would that cost a thousand pounds, or one million?
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