Professional Indemnity insurance is there to protect you and your business if a client of yours suffers financial loss as a result of work you have completed for them.
In this guide to self-employed Professional Indemnity insurance we will explain who this type of cover protects and why it is so important.
What is self-employed Professional Indemnity insurance?
Professional Indemnity insurance (PI) – sometimes called Professional Liability insurance – is a type of business insurance that will cover the costs of your legal defence, and any appropriate costs of correcting a mistake, if a client you have done work for takes legal action against you for a financial loss due to an alleged mistake or negligence on your part.
While Professional Indemnity insurance is not a legal requirement, it is often a mandatory requirement for members of professional bodies and can be required by some regulators.
It is common for PI to be stipulated as a requirement for contracts and proof must be provided that adequate cover is in place before the work will be awarded.
What’s the difference between Professional Indemnity and Public Liability insurance?
Professional indemnity insurance (PI) and Public Liability (PL) insurance are different types of business insurance that cover compensation claims.
Professional Indemnity insurance will provide cover for claims made by clients for alleged professional negligence or mistakes. Public Liability insurance offers cover for claims made by members of the public for injury or damage allegedly caused by you, either to their person or to their property.
Do you need Professional Indemnity insurance if you’re self-employed?
Not every self-employed person needs to carry Professional Indemnity insurance. If you are self-employed and own a café or a shop, then it is likely that you will not need it.
Professional Indemnity insurance is widely regarded as an essential type of cover for professionals offering services, advice and/or designs to their clients. If you offer any of these three types of service to your clients, then it is important to consider PI insurance.
Who needs Professional Indemnity insurance?
Professionals who will require Professional Indemnity insurance include: accountants, business advisers, architects, property professionals, graphic designers and marketers, and business services providers who handle and/or process data.
Some professions require their own type of Professional Indemnity cover. These can include those in the legal sector such as solicitors and barristers.
While those working in medical professions typically require Medical Indemnity insurance, which provides a higher level of indemnity cover than a Professional Indemnity insurance policy.
How do you see IPSE supporting your business in the future? And are there any specific benefits that have helped you?
"Hopefully through the experience and advice that IPSE and other members can share with me. Also, I got a much better quote from Markel than from the other insurance companies I looked at. So financially, that’s saved me some money as well."
- Lucinda, IPSE Member
Examples of self-employed professionals and why they might need Professional Indemnity insurance includes:
If you are subject to a claim of alleged negligence that your client claims has cost them money, then settling the claim and covering the costs could run into thousands of pounds if you don’t have PI insurance in place at the time the claim is made. As a self-employed professional, can you afford to be without cover?
Do you need Professional Indemnity insurance if you have self-employed staff?
If you are a self-employed professional who is working for an end-client, agency or other organisation, then it is highly likely that you will need to have your own Professional Indemnity policy in place, as you might not be covered by the Professional Indemnity insurance of the hiring party.
However, if you employ the services of self-employed professionals such as contractors, then it is likely that you are offering professional services, advice and/or designs to your clients. Therefore, you will need your own Professional Indemnity insurance to ensure your business is protected.
This is the same for freelancers who outsource work to other freelancers when they need assistance covering workload.
How much is the typical cost of Professional Indemnity insurance?
PI insurance is relatively inexpensive and can start from £8.00 per month, depending on your profession and the level of cover you need.
As an example, a graphic designer who operates through a Limited company with a £50,000 annual turnover, who requires £500,000 of cover, will currently pay £148.96 annually with Markel Direct (or £14.90 if paid monthly). Quote correct as of 30.09.2021.
How to find the best Professional Indemnity insurance if you're self-employed
Professional Indemnity insurance can be found via many providers online in a Google search. Your accountant will likely be able to recommend a provider who they know.
Recommendations from fellow freelancers about who provides the best PI insurance are popular. You’ll find that people you know will have their own opinion about who offers the best cover, which is typically dependent on the price of cover.
Like most insurances, Professional Indemnity insurance doesn’t become beneficial until you need it. You can purchase an expensive policy, yet not need to claim from it for many years.
Either way, it is important to ensure the PI insurance that you have will cover your contractual requirements for any given project that you are working on. Any rise in cover that is required will likely mean a slight rise in the cost of the policy.
What is ‘run off’ cover?
It is important to remember that a professional’s duty to their client does not necessarily end when the professional’s business ceases to exist. Professional Indemnity ‘run off’ cover is a policy that is typically taken out when a business stops trading.
‘Run off’ cover will provide indemnity cover for the cost of defending a claim made against those insured under the policy and will cover the losses incurred should the claim be upheld against those insured.
A reason for needing run off cover is if you decide to retire. If you are looking to close your business and wind down, then the last thing you want is a claim being made against you that could have a negative impact on your retirement fund.
There are many other reasons why a self-employed professional might stop trading, including: foreclosure, sale, merger, acquisition or the company owner may simply want a fresh challenge.
Placing a business into run off often results in a discounted premium in recognition that the company is no longer actively trading. The cost of cover can typically decrease year-on-year as the risk of a claim arising decreases.
If you need to take out insurance or a renewal is approaching, why not get a quote from Markel Direct, with a 10% discount for IPSE members.
Useful links and resources
- IPSE Freelance Corner
- Professional indemnity insurance explained – a simple guide to PI insurance | Markel Direct
Sources:
(1) https://www.nmc.org.uk/registration/your-registration/professional-indemnity-arrangement/
(2) https://www.qcs.co.uk/ask-sheila/carers-required-business-insurance/
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