Business insurance is an important part of a freelancer's toolbox, yet many don't recognise the role insurance plays in their workflow.
Isn't Insurance Overkill For A Solo Freelancer?
No way. Freelancing is risky. You can face issues with unpaid invoices, a relationship going sour or a client claiming they're unhappy with your work. Sometimes it's all three.
It doesn't matter how good you are, these things happen!
Insurance helps in scenarios big and small.
What Is Professional Indemnity?
Think of professional indemnity insurance as legal protection for freelancers. Professional indemnity (PI) protects a freelancer from screw-ups and problem clients. We go into more detail in our teardown of what you're covered for, although all policies differ.
When a client claims loss of income or damages due to advice or services that the freelancer provided, professional indemnity steps in.
It’s designed to help you if a client accuses you of:
- making a mistake in your work
- causing them loss of income
- not completing work to their expectations
A PI policy pays compensation and costs to the client, plus provides a team of legal experts to defnd the freelancer. This includes out of court settlements.
Clients are more willing to pursue compensation through the courts these days. As a freelancer's focus is on providing client services and advice, this can put the freelancer in a vulnerable position.
Some clients may consider a freelancer as small and unable to fight back, but with a professional indemnity policy a freelancer has a team of legal experts, solicitors and insurers behind them.
In the event a claim is made against the freelancer, PI ensures the consequences to your business and livelihood aren't crippling. It's created with the goal of keeping you in business.
You can read more about what professional indemnity insurance is here.
But Business Insurance Is Expensive
Wrong. Yes, there are more exciting things to spend your money on. We'd rather budget for new hardware than insurance, but hardware is useless when an unhappy client is on your case.
Business insurance should be a vital part of freelancing, such as working with a contract and doing your accounts. Plus, our policy can start from as little as £14 per month.
Let's look at two examples when PI would come in handy.
Example OneThe risk of a client refusing to pay an invoice and threatening to bring a claim against you is exchanged for a smaller sum of £168 a year. Your insurer steps in to resolve the matter, whether that be providing legal experts to negotiate with your client or reimbursing you for the unpaid invoice.
Example TwoThe risk of delivering a project late that causes your client loss of income is exchanged for a smaller sum of £14 a month. Your insurer steps in to resolve the matter, covering legal fees and compensation to the client.
With insurance, you're exchanging the possible impact of a big loss on your business for the certainty of a lower cost.
The Rise Of Professional Indemnity
There's a reason why professional indemnity is the most popular cover amongst freelancers.
It's increasingly common that clients contractually require a freelancer has PI insurance. All providers of professional services are vulnerable to allegations of negligence or failing in their professional duties, no matter how careful they think they've been.
An innocent mistake is all it takes for a freelancer to be held liable for professional negligence.
It's not just financial support your policy provides. Dealing with an unhappy or threatening client can be scary. With insurance you have a team of legal experts to support you.
Insurance is something you pay for and hope to never to use. But if it comes down to it your insurer can appoint lawyers and experts to defend you, easing the burden and providing emotional support.
Professional indemnity insurance isn't required by law, but many freelancers buy it for protection against potential damages, legal costs and expenses.
There have been large settlements against professionals for what the client considers to be breach of professional duty. Even if a freelancer can successfully defend a claim, they'll likely incur significant legal costs. PI covers these costs.
Here are some true stories about freelancers we've helped:
- How insurance helped this developer accused of IP theft
- How insurance helped this agency when client expectations weren't met
- How insurance helped this designer with a strained client relationship
- How insurance helped this developer fight scope creep
Remember, insurance is a risk transfer mechanism. Its purpose is to ensure you don't suffer the financial loss. Without insurance, you have to find a lawyer and pay to defend yourself in court and any compensation to your client.
With insurance, you don't carry the financial consequences of careless mistakes or problem clients—your insurer does.