IT Contractor Insurance
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What is run-off professional indemnity cover?
Posted Apr 13, 2012
If you are about to retire, or are taking a break from contracting for whatever reason, what happens if a client makes a claim against you for mistakes you may have made in the past?
Many professional contractors and consultants take out PI cover to insure against claims for negligence, loss of clients' data or documents, unintentional copyright infringement, and to cover a number of similar eventualities.
Many recruiters and clients now expect suppliers of professional services to be adequately covered against this type of calamity, although you may also decide to take out cover to provide peace of mind.
If you are about to leave the contracting industry, you will no longer need professional indemnity insurance for future work, however you may still be exposed in the event of claims made by past clients (however unlikely this may be in reality).
According to Law Society figures, 40% of all PI claims are made over three years after an alleged incident took place.
PI insurers operate on a 'claims made' basis, so any claims will be processed at the date of the claim itself, rather than being backdated to the date of the alleged error / mistake being made. So, if you don't have an active policy in place, you will not be covered by the terms of policies you have previously held.
The insurance industry created 'run off' cover for this very reason - to provide a subsequent period of cover after an individual has ceased to work in his/her profession.
Most industry experts recommend taking out a six year 'run off' policy, which will either be in the form of a one-off lump sum (which works out at around half the price of the last full annual policy cost), or an annual policy which cost less each year until it expires.
Another useful add-on to the typical PI policy is 'retroactive cover', which will backdate your cover, often to the date you started trading. This is often included as standard in many contractor-specific insurance policies, but check with your insurer that this is the case.
You can find out more in our retroactive cover guide.
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