Professional indemnity insurance is needed by some freelancers, although this depends on the industry they work in. This type of business insurance policy primarily protects those who sell their advice or service in case a mistake in their work causes a client to lose money. In the event of a compensation claim, professional indemnity insurance would cover the legal costs of defending or mitigating, as well as any damages.
There is no legal requirement to hold professional indemnity insurance, and not every trade runs the risk of being sued for negligence. But there are many industries where it would be worth considering. Particularly if an industry body requires it for accreditation, those occupations are explained below.
The important factors for a freelancer to weigh up when deciding whether it is worth spending the money on professional indemnity insurance are the likelihood of an error costing the client money, how much the freelancer could potentially cost a client, and could they afford the legal and compensation claims without insurance.
Like a sole trader, a freelancer is not protected financially in the same way a limited company is. They are responsible for all costs their business incurs. And with insurance costing as little as £45 for some freelancers, it could be a life-saving backup if things go wrong (Source: https://www.nimblefins.co.uk/business-insurance/freelance-insurance-uk).
What does professional indemnity insurance cover for a freelancer?
Professional indemnity insurance for freelancers covers genuine mistakes or allegations of negligence that cost their clients money. This could be because the client had to spend money putting right a mistake or because a piece of advice or service was deemed to have prevented the client from bringing in as much revenue as expected.
Incidents that could lead to a claim include:
- Loss of documents
- Accidental copyright breach
- Computer virus
- Dishonesty of employees, such as sharing confidential or commercially sensitive information.
- Acts or omissions from subcontractors.
- Claims of negligence or incompetence.
For example, a planner miscalculates the size of a new car park, meaning the number of spaces it can fit in has reduced, leading to significantly reduced revenue forecasts. The landowner sues the planner for compensation.
In another example, a graphic designer creates new marketing flyers for its client, but once they have been distributed, it is riddled with spelling and grammatical errors. The client sues the graphic designer for compensation due to having to re-do the flyers, the time and money lost in distributing, plus perceived reputational damage, which could impact their revenue.
Who needs professional indemnity insurance?
Any freelancer who sells their expertise, advice, service or trade should consider professional indemnity insurance.
Some professional boards demand it is taken out for some industries, such as architects and accountancy.
Those who probably should have professional indemnity insurance include:
- Financial advisors
- Insurance brokers
- Chartered surveyors
- Healthcare professionals
- Software developers
- Creative, marketing and design agencies and professionals
Those who should consider professional indemnity insurance include:
- Event organisers
- Construction professionals
- Education and coaching professionals
- Marketing, advertising and public relations agencies.
If the freelancer does any of the following, they run the risk of being sued by their clients:
- Gives expert advice regarding professional services.
- Handles sensitive data for a client.
- Works in a subjective field where they could be accused of not following a brief, usually in creative industries such as designing, or where the freelancer is left to exercise judgement and show flair.
- Is exposed to claims of professional negligence, e.g., giving incorrect advice.
- Has a client who insists on professional indemnity insurance as part of the contract terms.
Do I need public liability insurance as a freelancer?
Public liability insurance is one of the most popular products for businesses, but not every freelancer needs it. The policy funds compensation and legal representation if a third party is injured or has property damaged and claims the freelancer is responsible.
Not all freelancers come into contact with the public, and for them, they probably don’t require public liability insurance. But many people do, whether that be because they work in their clients’ homes, work in public spaces, or have a place of business visited by third parties.
With £6.64 million being paid out in public liability claims in 2019/20, according to the Government’s Compensation Recovery Unit, public liability insurance is increasingly being seen as a necessity for many.
The cost of public liability insurance varies between industries. Still, it is estimated to be about £118 a year for a small business wanting £2 million of cover, according to research by insurance experts Nimblefins. But this is likely to be considerably cheaper for a freelancer. Packages are usually sold with £1 million, £2 million, £5 million and £10 million cover and prices will vary depending on how risky the trade is.
Compensation can be sought for medical bills, repair bills and general compensation for trauma caused and future restrictions to everyday life.
Some trades require public liability insurance to be part of an industry body.
The Electrical Contractors’ Association (ECA) requires a minimum cover of £2 million in public liability insurance. The Association of Plumbing and Heating Contractors Limited (APHC) also requires public liability insurance with £2 million of cover against plumbing, heating and mechanical services. As well as employer’s liability insurance and professional indemnity insurance.
Public liability insurance is not a legal requirement (apart from horse riding businesses, according to the Association of British Insurers). But sometimes, clients will request it as part of the terms of working with a freelancer.
A few examples of freelancers with exposure to the public and a risk of causing damage or injury are:
- Window cleaners
- Other tradespeople
- Event planners
- Beauty therapists