We get it – business insurance can be confusing for freelancers. Not only are the names of all the different policies a bit of a mouthful, but often it’s not 100% clear what each insurance covers. Lots of freelancers come to us bewildered about whether they actually need insurance at all.
In this article, we’re taking a look at one of the most common types of business insurance that freelancers should consider – professional indemnity insurance. We’ll explore what it is, what it protects you from, why you might need it, and look at some example claims. Then, fully armed with all the info, you’ll be able to decide whether you want to take out professional indemnity insurance to protect your freelance business.
What is professional indemnity insurance?
Professional indemnity insurance is a type of business insurance that covers anyone providing a service as part of their work. This could include skills, knowledge or advice that you give to clients or other people (sometimes called third parties). You might sometimes see it referred to as simply “PI”.
What can happen in the course of your business is that a client or third party might accuse you of providing a poor service – making mistakes in your work, being negligent, or providing bad advice – that has made them suffer a financial loss. They can then try to claim against you to recoup these losses. These bills can be thousands or even hundreds of thousands of pounds. Professional indemnity insurance would then step in to try to protect your business against these claims. For example, with Dinghy’s professional indemnity insurance cover, a freelancer accused of negligence would be given their own expert legal team to take on the claim, meaning that they can carry on working without having to worry about building their case. Professional indemnity insurance would also cover the costs of any settlements, compensation, or legal fees from the other side.
What are some examples of professional indemnity insurance claims?
There are lots of different things that a client might try to claim against a freelancer providing professional services. Below is a list of the sorts of claims that can be brought against freelancers. It’s also important to know that a client or third party could claim against you even if you provided the service for free.
Negligence: When you make a mistake or don’t use a reasonable duty of care.
Example: A web designer accidentally includes the wrong telephone number on a website for a nail salon, meaning the business misses out on three weeks’ worth of calls until the error is spotted and rectified. The client claims that the freelancer’s negligence has cost them valuable business, as customers could not get through to book appointments.
Defamation, libel & slander: When you damage someone’s reputation or cause them harm through written or spoken words.
Example: A freelance writer has an article published on a news website featuring satirical comments about a prominent influencer. While the writer did not intend them to be taken as truth, the target of the comments argues that it has brought their brand into disrepute, causing them distress and to lose out on contracts.
Copyright breach: When you unwittingly plagiarise someone’s work or use material that belongs to other people.
Example: A graphic designer pops a copyrighted image in as a placeholder when putting together a catalogue for a client. They forget to switch it to the correct image before the catalogue goes to print. The original photographer notices this unauthorised use of their image and demands financial compensation.
Breach of confidentiality: When you share protected data or information.
Example: A social media manager accidentally sends a client’s end-of-year report, including their annual figures and strategy recommendations, to a competitor by cc’ing in the wrong email address. They have to own up to the client, who wants to bring a case against them for the damage this leak has done to their business.
One important thing about professional indemnity claims is that they can sometimes take years to appear. Typically, a client has 7 years to bring a claim against your professional indemnity insurance, sometimes longer.
Do freelancers need professional indemnity insurance?
For most freelancers, professional indemnity insurance is not a legal requirement. People working in certain professions have to have it, like solicitors, accountants, architects, chartered surveyors, financial advisers and some healthcare professionals. However, what freelancers need to weigh up is the risk and potential costs associated with anyone claiming against you if you’re uninsured.
Remember, if you were working for an employer, any mistakes you made or disputes that arose about the quality of your work or service would be covered by the business’s insurance. When you’re freelancing solo, you don’t have that same protection. You could be liable for settlements, compensation, legal fees – which can run into thousands or even hundreds of thousands of pounds. As well as this, you would have to take time away from work to find legal representation and build a case, whereas freelancers with professional indemnity insurance from Dinghy are supported by an expert legal team from Day 1.
Another thing to note is that freelance contracts will often specify a requirement to hold a certain level of professional indemnity insurance. If you don’t have this, but begin to work for the client anyway, you are potentially in breach of contract. Clients may also ask to see confirmation of insurance before the work commences. Dinghy makes this super-easy with our personalised dashboard that you can share with them. Clients like to know that their freelancers hold professional indemnity insurance as it guarantees that everyone is covered should something go wrong.
How do I get professional indemnity insurance?
We hope this article has demystified professional indemnity insurance for you – and perhaps you’re considering signing up to protect your freelance business. Dinghy are specialists in insurance for freelancers, so we understand what you need – flexible, low-cost and hassle-free insurance policies. You can manage all Dinghy policies online or through our handy smartphone app, including the ability to pause your cover at the click of a button: ideal for when you’re on holiday, between projects or taking some time out. Our policies are available to pay monthly at no extra cost, and with no admin charges. To get set up, start your personalised quote through our website.