IT Contractor Insurance - Professional Indemnity PI Cover

If you are thinking of taking out a professional indemnity insurance policy, here are some things to consider before parting with your money.

What is professional indemnity insurance?

This type of insurance will cover you in the event that a client claims against you for negligence, dishonesty, loss or damage to client data, intellectual property claims, and similar events. Aimed at people who provide professional advice to third parties (clients), a PI policy will cover the client's claims and any costs incurred in defending yourself against the claim.

Is it necessary?

For many contractors and consultants, having adequate PI insurance cover in place is a contractual requirement, so you have no choice. Even if it is not a mandatory requirement of your contract, many contractors choose to take out cover just in case, especially as the costs involved are fairly reasonable.

Does it help with IR35?

In order to comply with the IR35 legislation, you need to show that your contract itself and your working practices demonstrate that you are 'self employed', as per HMRC's definition of the term. Having business insurance cover would count as a pointer towards 'self employed' status.

How much cover?

Major professional indemnity insurance providers will offer levels of cover from around the £100,000 mark to £2m and beyond. Your contract terms may specify a minimum level of cover, otherwise it is up to you to decide on a level of cover.

What is retroactive cover?

An important component of a contractor's PI insurance policy will include the ability to cover claims for work done in the past. Retroactive PI insurance is often included as standard on contractor policies, and can cover you for claims arising for work done from the date you started in business.

What is 'run off' cover?

If you decide to terminate your policy for any reason, or come to the end of your contracting / consulting career, you should ensure that you are still covered for claims made in the future. As PI insurers operate on a 'claims made' basis, rather than claims based on the date the alleged fault occurred, industry experts recommend that you take out run off cover for a minimum of six years.

Part of a package?

You may be offered PI insurance cover as part of a general insurance package which will include public and employers' liability cover, and optional extras such as office insurance and equipment cover. You would expect the costs of an insurance bundle to be less than the sum of the parts if purchased separately.

How can I take out a PI policy?

At Contract Eye, we have worked with Hiscox for many years to provide contractor business insurance. You can find out more about Professional Indemnity, and obtain an online quote by clicking on the button below: