A guide to professional indemnity insurance

When you decide to leave behind the comfort of a permanent position to pursue a life of contracting, there are bound to be a few questions that spring to mind. One of the most common topics that come up when we speak to clients is insurance, namely professional indemnity insurance.

In the following paragraphs, we’ll give you a comprehensive description of professional indemnity insurance and why it is something that you should definitely consider.

In the meantime, if you would like to find out more about our fixed fee contractor accountancy package for just £55 per month, please call our friendly experts on 020 7481 4743.

What is professional indemnity insurance?

In a nutshell, professional indemnity insurance provides cover for someone who is alleged to have supplied an inadequate service. The insurance will cover legal costs as well as compensating the other side should it be deemed that you be required to compensate them.

No matter how much of an expert you are in your field, you are only human and there is a possibility that you could make a mistake – it happens to the best of us. Common situations where professional indemnity insurance has been used are:

  • When a contractor makes a mistake in a piece of work for a client
  • When a contractor loses an important document
  • Breach of copyright or confidentiality

Do all contractors need professional indemnity insurance?

Whilst professional indemnity insurance isn’t a legal requirement across all industries, if you carry out certain aspects of work it is recommended. For example, you should strongly consider taking out some form of professional indemnity insurance if you:

  • Provide advice to clients
  • Are responsible for a client’s intellectual property
  • Provide a service where you can be challenged on the quality of your work

Hopefully you will never be involved in a situation where you need to use your professional indemnity insurance. However, accidents do happen and it is worth taking out insurance for peace of mind that you are protected should anything go wrong.

No matter how long you have been contracting for, if a claim is brought against you, you could find yourself being left extremely vulnerable from a financial perspective. You’ll need to cover your own legal fees and compensation payable to the other side, and this could easily result in a bill that enters into the thousands, if not tens of thousands if you haven’t obtained the appropriate insurance.

Things to consider when searching for an insurance provider

Finding firms who offer professional indemnity cover isn’t a difficult task, a quick search online will provide you with countless options. That being said, not every provider will be able to offer you exactly what you need, so it is important to be aware of what you require from an insurer.

There are two main things that you need to look out for when searching for a provider:

  1. How much do they charge?
  2. What are you covered for?

You don’t want to be paying anymore for insurance than you need to (much like with tax) and you obviously want to make sure that you are covered for every potential eventuality.

There are countless insurance comparison websites that allow you to enter your requirements and you’ll be presented with a rough quote in a matter of seconds, which makes the process of finding the most cost effective options relatively straightforward.

Aside from cost, you want to know what is covered by the policy. A great place to start is to make a list of all the potential risks that your work presents and then search for a policy accordingly. You can speak to companies directly, tell them your risks and they will be more than happy to formulate a package that meets your needs.

One thing to be aware of is to not opt for less comprehensive policies purely on the basis of price – it might just leave you vulnerable if your policy is missing an essential component.

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Now that we have covered professional indemnity insurance and why it is a good idea for you to obtain cover, you might also find the following jargon-free guides extremely useful: