How much Professional Indemnity does a consultant or freelance professional need? Well, many consultants or contractors make the common mistake of thinking they are automatically covered under the principal’s professional indemnity policy. When we use the term ‘principal’, we’re referring to the company who engages the consultant to do the work for them. A word of warning, any professional who’s working on a contract basis shouldn’t assume that the principal is covering them.
if you make a mistake, what would be the cost to rectify the problem?
Furthermore, it’s not always in the principal’s best interests to cover the contractor or consultant. For example, a claim may begin with the principal being sued. However, it may not finish there. Why? You see, the principal (or their insurer) may want to seek to join the contractor as an additional party to the claim. In a way, the principal is protecting their position and seeking to transfer the liability to the contractor. As a consultant, you alternatively may not exercise the required level of care. Instead, it’s the principal suing you.
How to mitigate risk
For a contractor, or freelance professional, the best way to mitigate or control the risks is to buy PI insurance. However, if you’re still unsure you need PI insurance, we advise checking our some of our previous articles:
Okay, by now you should understand that as a consultant or contractor you must have your own professional indemnity insurance. But, what limit of indemnity do you need?
Three things to check before deciding how much PI to buy.
First and foremost, if you make a mistake, what would be the cost to rectify the problem? Consider this, the client may not want to use you to fix the problem. Instead, they may choose to use an alternative consultant. When considering the claim cost, don’t just think about the work you’re responsible for. Instead, think about the flow on effects a mistake would have for both your client. More importantly, their clients as well.
Secondly, check your contract with the principal closely. See if it has an indemnity or insurance clause. If so, does the insurance clause stipulate a minimum PI indemnity limit? If the contract doesn’t specify an amount, contact the principal to see what is acceptable before purchasing PI insurance.
Next, examine the contract. Check to see if there’s a minimum number of years you need to hold cover for. Remember, your PI insurance must be current when the claim is made against you. This applies regardless of when the work was done. For more information on this, refer to our previous videos and articles;
Not all consultants, contractors or freelance professionals are the same. Make note, exposures vary. Therefore, so will the professional indemnity limit. As a result, consider carefully what limit is right for you.
For your convenience, FD Beck has a free online insurance quoting tool tailored for contractors, consultants and freelance professionals. Our online calculator has almost 150 professional occupations to choose from. What’s handy, is that FD Beck’s online PI insurance calculator offers limits options of $500,000, $1,000,000, $2,000,000 and $5,000,000. Better still, our online calculator includes other products such as Public Liability and Cyber Insurance. That’s just to name a few.
For over 100 years, FD Beck has protected Australians. Rest assured, we have the knowledge and expertise to handle every aspect of your insurance needs.
For over 100 years, FD Beck has protected Australians. Rest assured we have the knowledge and expertise to handle every aspect of your insurance needs. For the past 20 years Simon has enjoyed a career in the Insurance industry as both a broker and underwriter. Prior to being a director at FD Beck Simon had a successful 8‐year management career with one of the worlds largest general insurers, which saw him deal with and structure insurance programs for some of Australia’s largest insurance purchasers.