Insurance advice
Freelancer and contractor insurance is designed to protect you against the unforeseen. This guide, produced in partnership with Markel Direct, outlines the different types of insurance available.
Why short-term professional indemnity insurance is risky
- 06 Jun 2023
At Markel Direct we regularly receive enquiries from self-employed professionals for short-term insurance policies.
Typically, these enquiries are for professional indemnity insurance (PI) or for public liability insurance (PL) and can be for one-off events or for short-term contracts.
Whilst there is an appeal to short-term contracts, the idea of only paying for three or six months of insurance to cover the term of the contract to save money is one you should avoid.
The primary reason for this is that you can still be subject to a claim against you, for the work you have delivered, long after your short-term contract has been completed, and any break in your cover could mean you have to pay for a large bill for legal fees and damages out of your own pocket.
Why is it so important to retain continuous PI insurance?
Many self-employed contractors are required to carry professional indemnity insurance, with a minimum limit, to indemnify their client in case something goes wrong, and the client’s business suffers a monetary loss as a result. This is standard practice across various industry sectors, especially for management consultants, IT contractors, marketers, and graphic designers. In short, for any professional who provides professional services, advice and or designs to clients.
While many projects go without a hitch, with a happy client and you fully paid, this can lead to a false sense of security. You might begin to think that you do not need to carry your professional indemnity insurance anymore, the job is finished, what could go wrong now?
If you cancel your PI insurance policy, you are leaving your business exposed to claims from the date you cancel it onwards. This is because PI is written on a 'claims made' basis, which means your insurance policy needs to be active both when the claim is brought against you and when you undertook the work which the claim relates to.
What can happen if you cancel your PI insurance?
An IT contractor takes on a 6-month contract. After the contract term finishes, the contractor cancels their PI insurance policy believing they do not need it anymore.
A couple of months later, a significant error becomes known in the work the contractor has delivered, which means the work needs to be rectified. The flaw in the work causes the client delays which cost the client lost revenue as well as the extra cost of correcting the flaws in the system.
The client makes a claim against the contractor for the loss of income and the extra costs, which runs into thousands of pounds.
Due to the contractor cancelling their insurance policy, they are not covered for any claims made after the cancellation date, even though the policy was active during the contractual period for the alleged negligent work. Therefore, in this instance they are without cover and must pay the costs of the claim out of their own pocket, which can include the legal fees and damages awarded to the client.
This type of scenario occurs because of a lack of understanding of how professional indemnity insurance works. To be sure you are covered, it is important to retain continuous cover, even if you have retired, just in case an issue arises from an old project.
What PI insurance options are open to you?
Markel Direct offer 12-month policies that can be paid for by interest free direct debit and provide continuous cover. This means your policy will automatically renew at the end of the 12 months and you will not be exposed to claims for a single minute.
Get a quick online quote for your PI insurance today at https://www.markeluk.com
Markel Direct
IPSE have partnered with Markel Direct, a specialist insurer of contractors, freelancers, self-employed professionals and micro-businesses to offer a 10% discount* on contractor insurance to IPSE members.
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