Business insurance is an important part of a freelancer’s toolbox, yet many don’t recognise the role insurance can play in their workflow.
In this blog post we’re specifically talking about professional indemnity insurance, but there are other insurance products you may want to consider:
Do I need insurance as a freelancer?
Absolutely. Whilst being insured isn’t a legal requirement, freelancing throws up many challenges so it’s never a bad idea to offload some of the risk. You can face issues with unpaid invoices, a relationship turning sour or a client saying they’re unhappy with your work. Sometimes it’s all three.
It doesn’t matter how good you are at what you do—these things happen. All it takes is one difficult client for your insurance to be worth its weight in gold.
What is professional indemnity insurance and how can it help you?
Think of professional indemnity as insurance for careless mistakes or problem clients. Professional indemnity is triggered if a client tries to recover compensation from you or makes a threat of legal action.
In our experience, disputes are mostly down to the misfortune of having a client that’s a bad apple. But according to our most common claims some industries like graphic designers and marketers are more susceptible to claims arising from mistakes.
We go into more detail in our professional indemnity teardown, or you can read our mammoth ‘Why do I need insurance?’ guide to really bolster your knowledge.
When we talk about professional indemnity ‘claims’, we mean any demand made against you for compensation. This includes any:
- monetary demand
- legal proceedings
- cross-claim or counter claim
- dispute resolution procedure
When a client claims loss of income or tries to recover damages due to advice or services that the freelancer provides, your insurance can be triggered. Your policy will respond by providing a legal team and covering the cost of any damages that need to be paid.
What kind of claims are we talking about? Think expenses incurred for hiring other freelancers to get a delayed project back on track, compensation to fix a costly mistake or damages for loss of income due to the end product not working as expected.
Insurance is designed to defend you if a client tries to recover money or threatens legal action due to you:
- making a mistake or an alleged mistake in your work
- causing the client to lose income
- failing to complete work on time
- not meeting client expectations
What happens if a client accuses you of any of the above? If accepted as a valid circumstance under your policy coverage and depending on the severity of the claim, your professional indemnity policy can provide a team of legal experts to defend you or assist in negotiations with your client, plus pay any agreed compensation to the client minus your policy excess. You can learn more about the behind the scenes of a professional indemnity claim here.
The insurer will do everything they can to settle the issue out of court and negotiate the best result for you. In our experience it’s a fairly collaborative process, with the insurer wanting to understand how you feel and settling on an outcome you’re comfortable with.
It’s not uncommon for clients to make baseless threats that they never intend to act on, but being insured can put the situation to bed quickly. Instead of suffering alone or giving into unreasonable requests to make the situation go away, your insurer can help you navigate the dispute and give you a bit of control in a situation you’d usually feel powerless in.
Freelancers might be thought of as small and unable to fight back with no in-house legal team. Some clients might think they can take advantage of this, but with professional indemnity insurance you have a team of legal experts helping you stand up to difficult clients.
So why does a freelancer need professional indemnity insurance? To ensure the consequences by standing up to difficult clients or making a mistake aren’t crippling. Professional indemnity insurance will help you stay in business by supporting you legally and financially.
How much does insurance cost?
There are more exciting things to spend your money on than an insurance policy, we won’t deny that. We’d rather budget for hardware, but a speedy new laptop is useless when an unhappy client is clogging up your inbox and draining your energy. We say this from experience!
Business insurance should be an important part of freelancing along with working with a contract and filing your accounts. Plus, it’s a lot cheaper than you’d expect and it’s tax deductible. The policy we arrange at With Jack starts from as little as £14 per month.
Let’s look at three examples when your professional indemnity policy could come in handy.
Client doesn’t think the freelancer completed work to spec
If a client doesn’t feel you’ve delivered the work to spec, refuses to pay your invoice and threatens to bring a claim against you, the mitigation costs clause could be triggered. This involves the insurer reimbursing you for the unpaid invoice if they think it will avoid a claim of a greater amount. The mitigation costs clause is one of our favourite policy features.
Project is delivered late causing the launch to be delayed
Delivering a project late can cause your client loss of income and incur other expenses. For example, your client might bring other bodies on board to get the project back on track and try to claim the additional expenses from you. The insurer can pay any compensation owed to your client so that you’re not out of pocket.
Freelancer is accused of copyright infringement
It’s not just clients that can bring a claim against you. Copyright infringement is one of the most common claims we deal with. These disputes range from logos, custom typefaces or accidentally using third-party content in your work without the correct license. The copyright holder often requests thousands of pounds in damages, and the legal costs in the defence of a copyright claim can quickly add up. With insurance both the legal fees in the defence of a claim and damages are covered by the insurer.
The rise of professional indemnity insurance
There’s a reason why professional indemnity insurance is one of the most popular covers amongst freelancers.
Contractual requirement
It’s increasingly common that clients contractually require a freelancer has insurance. All freelancers have a duty of care to clients and failing in those professional duties can have a negative effect on your client’s business, putting you in a vulnerable position if they expect you to rectify things.
An innocent mistake is all it takes for a freelancer to be held liable for professional negligence, or a client pinning the blame on you for something they perceive is your fault.
Even recruitment firms and freelancing platforms like YunoJuno won’t work with uninsured freelancers.
Emotional support
It’s not just financial support your policy provides. Dealing with an unhappy or threatening client can be scary and you’ll need help navigating those situations. As a freelancer you’re a one-person band, but insurance can ease the emotional burden because you don’t need to go through it alone. Don’t just take our word. Read what Craig, one of our customers, said when he needed help with a challenging situation.
Legal protection
Professional indemnity insurance isn’t required by law, but many freelancers buy it for access to affordable legal help. Instead of paying expensive, upfront fees if someone threatens legal action against you, professional indemnity insurance is a more affordable option.
There’s nothing stopping a client from making your life difficult for what they consider to be a breach of your professional duty. Even if a freelancer can successfully defend a claim, the legal costs alone can add up.
True stories
Here are some true stories involving freelancers we’ve helped:
- How insurance helped this digital marketer accused of copyright infringement
- 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. It won’t stop projects from going south, but its purpose is to ensure you don’t suffer the financial loss if that happens. Without insurance, you have to find a lawyer, pay to defend yourself and cover any compensation to your client.
With insurance, you don’t carry the financial consequences of careless mistakes or fallouts with clients—the insurer does. Think of it as your very cost effective, in-house legal team!
