Professional indemnity insurance is full of useful features, but many freelancers are taking a risk by running a business without it. Insurance might not be the most exciting purchase, but if needed it can save you from:
- spending thousands of pounds in legal fees
- selling a valuable asset like a car or home to cover damages
- having to liquidate your business
We've helped thousands of freelancers arrange insurance and we've seen a lot of nasty situations along the way. These situations would have ended a lot messier had the freelancer been uninsured.
We're now on a mission to help freelancers be more prepared for the everyday problems they face. That starts with helping you understand your professional indemnity policy. Let's go!
What is professional indemnity insurance?
Professional indemnity insurance is a very meaty cover, but we like to think of it as insurance for careless mistakes and problem clients.
Professional indemnity insurance is designed to put a freelancer back in the same financial position after a loss as they were in prior to a loss.
What does a loss look like?
A loss can range from:
- hefty legal fees from defending yourself
- damages awarded to a client for loss of income
- compensation for hiring other freelancers if a project has fallen behind its deadline
These are just a few examples of loss, and they can arise either from a mistake you've made in your work or a problem client making unfounded accusations.
In our experience most situations arise as a result of a client relationship gone sour. A number of problems occur during the project that causes friction. The relationship gradually breaks down and leads to a claim against the freelancer.
Here are a few of the common scenarios we've witnessed:
- Issues around scope creep. A client wanting extra work completed for free, then refusing to pay the developer's outstanding invoice and involving solicitors.
- A designer terminating their contract early. This was due to an unhealthy relationship with the client, which escalated to them claiming damages for loss of income and compensation for hiring another designer.
- A project being delivered late. This lead to an unhappy client refusing to pay the outstanding invoice and complaining of a loss from marketing and PR costs.
When situations reach the stage of legal action the insurer will appoint a team of legal experts to help defend you. Depending on the situation, the insurer can also cover compensation to the client and pay your outstanding fees if they believe it will avoid a claim of a greater amount. This is all covered under the policy.
Insurance sounds pretty great, right?
But I work with a contract
Great! Pat yourself on the back. You're in a better position than those that don't have a contract, but here's the truth—most of the freelancers we've helped in sticky situations also had a contract.
Contracts are fantastic for outlining what duties are to be expected of both parties, but contracts do not stop a client from making a claim against you. It can even be used as a reason to make a claim against you if there's been a breach of terms.
Even with a contract in place there can still be disagreements around payment, termination of your services, standard of work and other terms.
So, what does this insurance do exactly?
In a nutshell it can:
- provide you with legal help
- offer support in scary situations
- keep you in business should a client seek a large sum of money for damages
- pay for your legal expenses in the defence of a claim
- cover the cost of compensation to your client
- negotiate a better outcome for you
Remember that professional indemnity insurance is designed to defend you when a claim is made against you. It's not there for you to make a claim on.
For example, let's say you've made a costly mistake in your work. Telling your client you have insurance and they can recover the cost of fixing the mistake from the insurer is not how professional indemnity insurance works. The client would have to make a claim against you for compensation to fix the mistake for the policy to be triggered.
What are the most common professional indemnity claims against freelancers?
The most common claims against freelancers vary depending on profession, but most problems arise from:
- Mistakes in work. Think typos on packaging for graphic designers or technical issues for developers
- Copyright infringement. These types of claims are most common against designers
- Project management issues. Ambiguity around the scope or poor communication
- Dissatisfaction with end product. Maybe work was over promised and under delivered, but sometimes clients are just impossible to please
How much does it cost?
Insurance isn't nearly as expensive as you probably think and it's tax deductible. You can expect to pay £14 per month for £1,000,000 of professional indemnity if your turnover is under £250,000.
You can get a quote without giving away any personal information until you're ready to buy.
What happens if I need to use it?
We've written a blog post to help you when dealing with a claim.
The gist is that you'll need to provide the insurer with details around the circumstance. Information such as the date it happened, potential loss, and any contracts, emails and communication that can bolster your defence.
The likelihood you're contacting your insurer because something has gone wrong is high. Insurers understand this and know you'll be feeling stressed. Whilst it does take time to look through all of the evidence and details you supply and figure out the best course of action, they'll do their best to support you along that journey.
This is something we take seriously at With Jack. We'll check in with you throughout the process to see how you're feeling.
Anything else I should know?
The freelancers we've helped never expected to use their insurance. They're diligent freelancers, great at their profession and do good work. Insurance was ticking along in the background as a back-up. Just in case.
Unfortunately there are many variables that can go wrong when running a business and they're not always in your control. Projects can be delivered late, client expectations might not be met… insurance acts as a safety net in these events.
Professional indemnity insurance should be an integral part of a freelancer's workflow alongside working with a contract or doing your accounts. Get insured today.
If you want to learn even more about professional indemnity insurance, here are some suggestions: