Navigating insurance can feel like a minefield. Especially when much of the information available isn't written with freelancers in mind. We've compiled a list of questions we're regularly asked about insurance for freelancers. This resource will give you a better understanding of what business insurance is and why it's relevant to freelancing.
What is business insurance?
Insurance isn't a term most freelancers can relate to, but we break it down like this: 44% of freelancers will be stung by a bad client. Insurance exists to protect you financially and legally when that happens.
Why does my business need insurance?
For situations like this and this. It can provide you with a team of legal experts, offer emotional support in stressful situations, keep you in business should you suffer a financial loss, cover the cost of legal expenses in the defence of a claim as well as compensation to a client. Phew! Business insurance can help you recoup lost expenses. In extreme cases it can save you from going bankrupt.
Do freelancers need insurance?
It's not a legal requirement, but it is an important part of a freelancer’s toolbox. Freelancing is risky. You can face issues with unpaid invoices, a relationship going sour or a client claiming they’re unhappy with your work. Insurance helps in scenarios big and small. Business insurance should be a vital part of freelancing, such as working with a contract and doing your accounts.
Which insurance do I need as a freelancer?
There's no clear-cut answer to this, although anybody offering a service or advice to clients should consider professional indemnity insurance. We've made a tool to help you build a picture of what insurance you need based on your work activities.
Do I need professional indemnity insurance?
Do you provide a service or offer advice to clients? If yes then you should consider this cover. Professional indemnity protects a freelancer from screw-ups and problem clients. Most of the professional indemnity claims we've dealt with have been as a result of a client relationship gone wrong. There’s a reason why professional indemnity is the most popular cover amongst freelancers.
What does professional indemnity insurance cover?
This is a meaty cover, but let's keep it relevant to the type of work freelancers do. Professional indemnity exists to put you back in the same financial position after a loss as you were in before a loss. A loss can range from legal fees in the defence of a claim, to damages awarded to a client. Both of these expenses can arise from a mistake you’ve made or dealing with a problem client. From our experience, most situations have arisen as a result of a client relationship breaking down. Your insurer will appoint a team of legal experts to help you. Depending on the claim being made, the insurer may reimburse a freelancer’s unpaid fees and pay damages to the client.
What's an example of a claim?
Here are a few examples from With Jack customers:
- A client wanted extra work completed for free (hey, scope creep). When the developer said it would cost more to do the work, the client refused to pay the outstanding invoice and threatened to involve solicitors if the work wasn't completed. In this case the insurer paid the developer £9000 in unpaid fees, as well as the cost of the legal team appointed to deal with the client.
- A designer terminated their contract early due to an unhealthy relationship with the client. The client claimed damages for loss of income (due to the site not being completed on time), compensation for hiring another designer and reimbursement for the work they'd already paid for. In this case an agreement was reached out of court, but the initial claim against the designer was tens of thousands of pounds and enough to fold their business had they not been insured.
Is insurance a legal requirement?
No, but it's good practice to have it. The only business insurance that is a legal requirement is employers' liability insurance. This is only if you employ people, so generally it isn't relevant to freelancing.
How much insurance do I need?
The short answer is: buy as much as you can you afford. We get asked this question a lot, but there never seems to be a simple answer. Think of what kind of clients you're working with (small businesses or giant corporations). Also consider your responsibility to the client. What’s at stake if you make a mistake? It's a tricky one to answer, so choose the level of cover you can budget for.
I have clients sign a contract. Do I still need to be insured?
Many freelancers ignore insurance because they work with a contract. Having a contract is an integral part of freelancing, but it does not stop a client from making a claim against you. Contracts don’t alleviate you of liability. They’re important for laying the foundation of what duties are expected, but insurance steps into action when those duties come into question. With every claim we've seen there’s been a contract in place. It doesn’t stop a client from making a claim against you.
How much is business insurance?
Insurers calculate premiums differently. At With Jack it's based on two factors:
- Turnover. If revenue is over £250,000 a year you'll have a higher premium.
- Level of cover. Do you need £1,000,000 or £2,000,000? Public liability and contents, or just professional indemnity?
Let's say you're a web developer who turns over £60,000 a year and needs £1,000,000 of professional indemnity. You'd pay £14 a month.
Is business insurance tax deductible?
Yes. Business insurance is an allowable expense, so it's tax deductible. There is really no excuse not to have it.
Do you pay VAT on insurance?
No, insurance is VAT exempt. Business insurance is liable to Insurance Premium Tax. The government raised IPT from 10% to 12% in 2017, so if your renewal is a little pricier, that explains why.
What is contents insurance for business?
A lot of people have contents insurance for their personal belongings. However, these policies typically exclude contents used for business purposes. That's why there's specialist contents insurance for business. You can insure the equipment you use for work such as laptops, cameras, tablets etc. All policies differ, but at With Jack your contents are insured worldwide. Our customers insure an average of £10,000 of equipment!
Can I insure overseas work?
Yes. A lot of insurers shy away from worldwide cover. The policy we arrange excludes USA and Canadian jurisdiction by default. However, this restriction can be removed so your overseas work is insured. Expect to pay a higher premium if you're insuring USA and Canadian work.
What's a retroactive date?
Think of it as the backdate your insurance policy will cover any claims for. If a claim arises for work carried out before the retroactive date, you won't be covered. If you're buying business insurance for the first time, your retroactive date will be the start date of your policy. If you've been in business for a while and had continuous cover, your retroactive date will reflect however long you've had uninterrupted insurance for. It's a good idea to get insured as soon as possible.
What's the difference between in the aggregate and each claim?
Let's say you're a freelance designer with £1,000,000 of professional indemnity insurance. If your policy is 'in the aggregate' it means £1,000,000 is the accumulative total your insurer will pay within the policy period. 'Each claim' would cover up to £1,000,000 for each and every claim within the policy period. The £1,000,000 'pot' is reset for each claim. All policies are different, but at With Jack your policy is on an each claim basis.