This question trips up a lot of freelancers when buying insurance.
It can be unnerving to think you’re under-insured. Alternatively, you don’t want to be over-insured and paying more than you need to be.
Sorry to break it to you, but there isn’t a straightforward answer when deciding how much cover you need.
There are, however, certain questions you can ask yourself to arrive at a sensible figure.
To calculate your maximum probable loss, ask yourself:
- What is at risk?
- What is it worth?
- How much of it is likely to be damaged, and to what extent?
Let’s cover this in freelancer speak, not insurance lingo.
What Type Of Clients Are You Working With?
Corporations handling expensive transactions, or small ‘mom and pop’ businesses?
Companies with a larger turnover, dealing with sensitive information or higher-cost products pose a bigger threat, therefore should have a higher level of cover.
Who is your highest-risk or biggest client? Choose your level of cover with them in mind.
If You Made A Mistake, What Could Be The Extent Of The Damage?
Sorry to be a Debbie Downer, but think worst case scenario. What’s your responsibility to the client? What’s at stake if you make a mistake?
Say you’re a developer and have built an eCommerce store for a client. A bug in your code means it’s down for a day. How much income has your client possibly lost? As the developer, you’re potentially liable and your client could seek compensation.
Furthermore, if you’ve used this code in other client work—and the bug has affected their business—they could all seek compensation.
Be wise about the extent of the damage and whether potential mistakes could extend beyond just one client.
What Limit Of Insurance Is Your Client Requesting?
More and more clients are contractually requiring that a professional has insurance. What limit is your client asking for?
“How much cover do I need?” is a bit like asking how long a piece of string is. By looking at your type of clients, the mistakes you could make and the extent of the damage, as well as client contracts, you can arrive at a sensible figure.
It’s worth noting that professional indemnity insurance doesn’t just pay compensation to a client, but covers legal fees as well. These can all add up, so it’s worth choosing the highest level of cover you can afford.
Ashley is the woman behind Jack. A photographer, occasional public speaker and tinkerer of code, Ashley's aim is to simplify insurance. And deadlift 100KG.