Professional liability is a key risk management tool for freelancers. It's insurance that protects you if a client claims your professional service caused them financial harm.
What is Professional liability?
Professional liability, often called errors and omissions (E&O) insurance, is a type of coverage. It protects you if a client claims your work was faulty, negligent, or late, causing them a financial loss. It covers legal defense costs and potential settlements.
Why is this important?
For freelancers, a single mistake or misunderstanding can lead to a costly lawsuit. Even if you're not at fault, defending yourself is expensive. This insurance provides a financial safety net, protecting your personal assets and business reputation from serious claims.
How does it work?
You purchase a policy from an insurer, paying a regular premium. If a client sues you for a covered issue, you file a claim. The insurer then handles your legal defense and pays for covered damages, up to the policy's limit, after you pay the deductible.
Pros and cons
The main pros are financial protection and peace of mind, which can help you win larger clients who require it. The cons include the ongoing cost of premiums and the fact it doesn't cover intentional wrongdoing or general business risks like a broken laptop.
Conclusion
Professional liability is a fundamental safeguard for any serious freelancer. It manages the inherent risk of providing advice or services. Evaluating your need for it is a crucial step in building a resilient freelance business.
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