As a self-employed freelance contractor or consultant, you will be familiar with entering into contractual arrangements with either agencies or larger firms. Many people believe that the basis of these contracts will effectively be the same each time and often sign lengthy documents without full analysis of the required contractual terms.
However, in reality you could be inadvertently agreeing to some relatively onerous terms and conditions – one of which often surrounds Professional Indemnity Insurance.
What’s In The Small Print
It is commonplace for consultants or contractors to be asked to provide proof of Public Liability and Professional Indemnity Insurance up to the standard limit required by the contracting firm. These limits will have been determined through analysis of the risks involved, or a requirement to match the level of cover the main firm enjoys under their own insurance policy.
The requirement to obtain your own cover makes absolute sense as it also protects your business as well as meeting contractual demands, however the main area overlooked on the Indemnity Insurance side is often the need to maintain cover for up to 7 years AFTER the contract has expired.
Why Is PI Cover Required Beyond Expiry Of A Contract?
Indemnity cover is provided on what is known as a “Claims Made” basis. What this means is that you need cover in place, not only when you are undertaking the work, but also when a claim or accusation of a claim is made against you.
In reality, problems leading to claims can often arise months, or even years, into the future. If your policy is not in force you would be left to handle any legal liabilities yourself, which could have significant financial implications on your business and even your personal assets such as your home.
Pricing Your Work
Most Consultants will build the insurance cost into their charging structure – be it for the entire job, or on a day rate basis. However, if your contract is committing you to a 7 year insurance requirement, you may wish to allow additional cost in this regard.
Consultants Professional Indemnity Insurance is not restricted per contract and the simplest solution is to maintain on-going cover which reflects your different business activities across different contracts. However, be aware that if a contract is requesting a higher limit (£5,000,000+), you may incur higher premiums for an extended period until the contractual reporting period is reached.
Run Off Cover
Maintaining on-going cover while you are working across new contracts is all well and good, but what if you return to employment or retire? In these circumstances you may still have contractual requirements to meet from completed work and claims could still be forthcoming.
Insurers deal with these circumstances by offering “run off” cover. This will cover the previous work completed, but will no longer make a charge for any future work. Typically, two options are available for run-off cover:
- Making a single payment for the agreed level of run-off (for example 7 years)
- Continue with annual cover, with the proportionate charge reducing each year as the insurable exposure reduces (on the basis that no claims are received)
FREE Professional Insurance Review
Insync specialises in cover for all types of professional risks, offering bespoke packages for all types of consultants. You can request a quotation online, alternatively, why not book a free review with one of our expert Gurus who can advise on your exacting requirements and Compare Professional Indemnity Insurance from 5+ Insurers in minutes, helping you find the right level of cover at the right price.