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?
Professional indemnity (PI) protects a freelancer from screw-ups and problem clients. We wrote a teardown of what you’re covered for, although all policies differ.
When a client claims loss of income or damage due to advice or services that the freelancer provided, professional indemnity steps in.
A PI policy pays compensation and costs to the client, plus the freelancer’s defence costs. 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 be a liability.
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.
But Business Insurance Is Expensive
Wrong. Yes, there are more exciting things to spend your money on. Like new hardware! But new 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.
Let’s look at two examples when PI would come in handy.
The risk of a client refusing to pay a £9000 invoice is exchanged for a smaller sum of £250* a year. Your insurer steps in to resolve the matter, whether that be covering legal fees in court or reimbursing you for the unpaid invoice.
The risk of a coding mistake that causes your client loss of income, which they seek financial compensation for, is exchanged for a smaller sum of £15* a month. Your insurer steps in to resolve the matter, covering legal fees and compensation to the client.
* These are example figures, yet realistic ones. Premiums are calculated on multiple variables.
With insurance, you’re exchanging the uncertainty of loss 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 people 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 million pound 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.
Remember, insurance is a risk transfer mechanism. Its purpose is to ensure you don’t suffer the financial loss. Without insurance, you have to pay to defend yourself in court and any compensation to your client.
With insurance, you don’t carry the burden of the cost—your insurer does.
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.