Why does a freelancer need professional indemnity insurance?

A client relationship gone wrong, work delivered late, unpaid invoices… With Jack looks at why a freelancer needs professional indemnity insurance.

Business insurance is an important part of a freelancer’s toolbox, yet many don’t recognise the role insurance plays in their workflow.

Do I need insurance as a freelancer?

Absolutely. Whilst being insured isn’t a legal requirement, freelancing is risky business. 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! All it takes is one difficult client to make your insurance worth its weight in gold.

Insurance helps in scenarios big and small.

What is professional indemnity insurance?

Think of professional indemnity as insurance for careless mistakes or problem clients. Professional indemnity (PI) is triggered if a client tries to recover compensation from you or makes a threat of legal action.

We go into more detail in our professional indemnity teardown of what you’re covered for, or you can read our mammoth ‘Why do I need insurance?’ guide.

When a client claims loss of income or damages due to advice or services that the freelancer provided, professional indemnity steps in. 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 finished 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 in your work
  • causing them loss of income
  • not completing work to their expectations

What would happen if a client accused you of any of the above? Your professional indemnity policy would provide a team of legal experts to defend you, plus pay any agreed compensation to the client minus your policy excess. The insurer would do everything they can to settle the issue out of court and negotiate the best outcome for you.

Sometimes the client will make a baseless threat they never intend to act on, but being insured can put the situation to bed quickly. Instead of suffering alone or paying for expensive legal fees your insurer will help you navigate the situation.

Some clients consider freelancers as small and unable to fight back with no in-house legal team, but with professional indemnity insurance you have a team of legal experts helping you be a confident freelancer.

Being insured ensures the consequences to your business and livelihood aren’t crippling. Professional indemnity insurance will help you stay in business by supporting you legally and financially.

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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 new hardware than insurance, but hardware is useless when an unhappy client is clogging up your inbox and draining your energy.

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 would come in handy.

Example one: 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. 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. This risk is exchanged for the smaller sum of £168 per year.

Example two: Freelancer delivers work 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 risk of this 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.

Example three: 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 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 insurance

There’s a reason why professional indemnity insurance is the most popular cover amongst freelancers.

Contractual requirement

It’s increasingly common that clients contractually require a freelancer has insurance. All providers of professional services have a duty of care to clients and failing in those professional duties can leave you in a vulnerable position.

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.

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 takes legal action against you, a professional indemnity policy is a more affordable option.

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, the legal costs alone can add up.

True stories

Here are some true stories involving freelancers we’ve helped:

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, pay to defend yourself and cover any compensation to your client.

With insurance, you don’t carry the financial consequences of careless mistakes or problem clients—your insurer does.

We asked ourselves one important question…

What do we want out of an insurance provider?

With Jack is the answer