Home Business NewsBusiness All you need to know about your SME and professional indemnity insurance

All you need to know about your SME and professional indemnity insurance

6th Oct 16 10:10 am

Here’s a quick guide to help you find your way.

We’re currently living in a ‘gig economy’, where the number of people who are self-employed or setting up their own SMEs is increasing daily. In fact, in the last eight years, the number of individuals taking on freelance work has risen from 1.4 million to 1.9 million, a huge leap and one that is reflected across every sector.

It’s easy to see the appeal of being your own boss – the chance of a better work/life balance, the opportunity to pursue the avenues that best match your professional capabilities and the ability to escape old-fashioned working culture. However, self-employment also comes with its own set of challenges and decisions. Deciphering how to process your own taxes and National Insurance, learning how to recruit people and be a good employer, and simply having the ability to generate business, are just a few of the battles you’ll face. Another is the question of professional indemnity insurance, something many people haven’t even heard of before they take the plunge and go it alone.

So, what is professional indemnity insurance, and is it something you’ll need as you start this new adventure? Here’s a quick guide to help you find your way.

What is professional indemnity insurance?

Professional indemnity insurance is, in essence, insurance products created to cover individuals or organisations against things going wrong in the course of their providing of professional services. For example, the insurance policies will cover mistakes that lead to expense for you or your client, breaches of professional duty, or negligence. It means that when human error occurs, you’re covered and your business is more secure. Just as your car insurance gives you peace-of-mind should you have a bump or a more serious crash, your professional indemnity insurance provides reassurance that your business can continue trading should things go wrong.

Who needs professional indemnity insurance?

Historically, certain professions have been more likely to take out professional indemnity insurance. Most frequently, these are professions where there is a certain degree of financial risk associated whereby individuals/companies provide services and advice upon which their clients depend, for example accountants, architects and property surveyors. For these types of people it was (and remains) essential to have professional cover that would protect personal assets, should anything go badly (and expensively) wrong in the course of carrying out services.

Today, with many more people making the move to self-employment and an increasingly litigious culture, all sorts of individuals hold professional indemnity insurance, from business consultants to IT contractors. For some it’s an industry requirement, for others simply a sensible precaution.

How much professional indemnity insurance do I need?

There is one key way in which this type of insurance differs from others. While insurance on your home, car or travel usually has a standard upper limit (i.e. the maximum amount your insurer will pay out should you make a claim), with professional indemnity insurance there is a choice of limits. Which one you choose will depend on your clients’ needs and the recommendations of the industry bodies you’re answerable to.

What is a retroactive date on professional indemnity insurance?

As you put your professional indemnity insurance in place, you will likely hear the phrase ‘retroactive date’. This is simply the date from which you’ve been covered by your uninterrupted insurance.

Of course, the question of whether or not you require professional indemnity insurance will depend very much on your profession and your personal working life. However, hopefully this short guide will have brought the issue into sharper focus for you.

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