When you buy insurance, whether it’s for your home or your business, you’ll be asked how much cover you want to buy.
Sometimes, the answer is easy. For office insurance, it’s a matter of totting up the cost of replacing your items if they’ve been damaged or stolen.
But for professional indemnity insurance, it can be harder to estimate how much cover you’ll need for your business. And because each business is unique, there’s no one-size-fits-all solution.
Professional indemnity insurance, also known as PI, can help to protect you if claims are brought against you by a client. PI will help to put mistakes right and cover any legal costs if a client is unhappy with your work.
It makes sense for anyone who provides a service or gives advice to consider PI. PI might even be a condition of a contract or of membership to a professional organisation, such as ACCA, the professional body for accountants. If this is the case, then the level of minimum level of PI will be decided for you.
But if you have to work out cover for yourself, here are three things to consider:
- Size of the contract you are undertaking and the size of the client you’re working for
- Potential costs to defend yourself if it came to the worst
- Maximum compensation that could be awarded against you (think about the fees you are being paid and, perhaps, multiples of this)
When work is going well it can be hard to envisage a scenario where your client is unhappy enough to sue you – for thousands, or even millions, of pounds. Unfortunately, you can’t predict the future and even the happiest of work situations can turn sour if what is delivered does not meet client’s expectations.
As a guideline, think about the value of the contract to you, as well as the complexity of the work involved. Consider the turnover of the business and your pay as a proportion of that turnover.
If the worst comes to the worst, a client may ask for compensation to cover the money paid out to you, as well as the cost of rectifying any mistake you make. Think of the worst-case scenario and how much it could post to put it right.
Also, think about the size of the client. How deep are their pockets? If they have the cash they may decide to sue you as a matter of principle.
As well as potentially being required to compensate your clients, there may be legal costs to pay for the investigation and defence of your case. Don’t underestimate how much this could potentially cost. Legal costs can run into the thousands if the case is complex.
When you run your own business, the responsibility for getting things right sits firmly on your shoulders. This is where insurance comes in. It will pay for somebody to fight your corner, should the worst happen, so it makes sense not to skimp on protection.
To learn more about personal indemnity, visit our article on what is professional indemnity insurance.
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