Professional indemnity insurance is a key form of protection for freelancers. It safeguards you if a client claims your advice or services caused them a financial loss.
What is Professional indemnity insurance?
Professional indemnity insurance, often called PI or errors and omissions insurance, is a policy that protects you if a client claims your professional work was faulty, negligent, or caused them financial harm. It covers legal defense costs and any compensation you may be ordered to pay.
Why is this important?
For freelancers, a single mistake or a dissatisfied client can lead to a costly lawsuit. Even if a claim is unfounded, defending yourself is expensive. This insurance provides a critical safety net, allowing you to work with confidence on larger projects and with bigger clients.
How does it work?
You pay an annual premium to an insurer for a specific level of coverage. If a client makes a claim against you, you notify your insurer. They will typically appoint legal experts to handle the case and cover the associated costs, up to the limit of your policy.
Pros and cons
Key advantages include financial protection, enhanced credibility with clients, and peace of mind. The main considerations are the ongoing cost of premiums and the need to carefully understand policy exclusions, such as intentional wrongdoing or known errors before coverage began.
Conclusion
Professional indemnity insurance is a fundamental business expense for serious freelancers. It manages the inherent risk of providing professional services. Assessing your project types and client contracts will help you decide if this coverage is right for your freelance business.
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