Professional Indemnity Insurance

Insurance for Freelancers: Everything You Need to Know

By May 25, 2021 July 7th, 2021 No Comments
professional indemnity insurance

Being a freelancer has plenty of benefits. The flexibility of working from wherever and whenever you want. Determining your own working hours. The opportunity to price your services better and earn more. No wonder India has an estimated 15 million freelancers. And since the breakout of the pandemic, this number has seen a significant jump and is expected to continuously grow in the following months and years. In fact, India is the second-fastest-growing freelance market in the world.

But along with the pros also come the challenges and disadvantages of being a freelancer. One of those is legal risks. Unlike working in an organization where employees’ liabilities are limited and they are protected against legal claims with relevant business insurance, things are different for freelancers. They are constantly exposed to the risks of being sued by a third-party. This is why every freelancer, irrespective of their industry and work, should ideally invest in the right insurance policy to cover any legal liabilities that may come in their way for any reason.

Why Freelancers Need Insurance?

Being a freelancer comes with legal vulnerabilities. What if you get sued by your client? What if your service results in them sustaining loss for which they take you to the court?

Take an example: You’re a software developer. A finance company hires you to develop their in-house accounting software. You delivered them software. After a month, however, they discovered there was a glitch in the software which brought them significant financial losses due to irregularities in accounting. For this, they decided to sue you.

Take another example: Say you’re a marketing consultant. A company hired you to help them create an online sales strategy. You provided them some solutions and they followed. However, despite following everything you suggested, their campaign didn’t deliver good results. They sustained reputational damage because they followed your creative ideas. For this, they decided to sue you.

There could be countless such scenarios where your client may choose to sue you because they sustained losses as a result of your professional service. Their grounds for such a lawsuit could be negligence, breach of professional duty, as well as errors and omissions. Even if their ground for legal claims is not adequate or legit, such lawsuits would still cost you in defending yourself at the court. This is why you need liability insurance coverage. And this is true regardless of the kind of freelancer you are; writer, web developer, legal consultant, accountant, graphic designer, teacher, animator, painter, real estate agent, digital marketer, video editor, and more.

What types of insurance freelancers need?

Professional indemnity insurance is the most popular and fitting policy for freelancers. This insurance is specially designed for individuals or businesses that offer professional services. It provides you coverage against legal claims, made by a third party, of financial loss or damage due to negligence, breach of contract, errors, and omissions in the services provided.

Professional indemnity insurance will pay for your lawyers’ fees, as well as court and judgment charges. It would also take care of settlements. In addition, in case if any investigation is required which could add to the legal representation cost, the insurance can aid even there.

Given its coverage, professional indemnity insurance has its limitations as well. Several things come into its list of exclusions, including bodily injury, fines, penalties, violation of law, malicious act, fraud, and more. These are the things that this insurance won’t cover.

In addition to professional indemnity insurance, you may be required to sign up for other liability insurance policies as well. General liability insurance is among the common names. It will cover you against claims of bodily injury or loss of property. Furthermore, if you run your freelance business out of a physical space or office where people come regularly, the CGL insurance will help you if someone asks for compensation for the physical injury they sustained on your property.

If you own physical space for your freelance business, you would also need property insurance. This insurance will pay for the repairing or replacement of assets on the property due to damage in events of fire or theft. Similarly, if you use a vehicle to meet your business needs (like you use a car to travel and meet clients), you should also have commercial auto insurance.

These are some of the types of insurance policies that freelancers should invest in.

How much insurance for freelancers cost?

Now that you’re aware of why freelancers should invest in insurance and what types of policies are fitting for them, the next most obvious question is this: How much insurance for freelancers cost?

Unfortunately, there’s no hard answer to this question. Assuming that you’re buying professional indemnity insurance, which is what every freelancer should foremost and essentially have, there’s no way how much it will cost you.

The cost of liability insurance for freelancers depends on their risk exposures, as well as their financial standing. There are several factors that come into play here, including the type of freelancer they are, their industry, their contracts, past track record, credit history, and more.

For instance, if you’re in a high-risk industry (say legal, finance, and healthcare), you have greater risk exposures; your liabilities are more. This is in contrast to, say, a painter or content writer who is less likely to getting sued; even if they are sued, the damage amount or compensation would be less. So, in the former example, not only would you need wider coverage but since you have high-risk exposures, the cost of insurance for you would be higher. On the other hand, in the latter example, your coverage requirement would be relatively less and so would be your policy cost.

So, again, there’s no one answer to how much would professional indemnity insurance would cost you. The cost can vary from one freelancer to another based on different factors.

The best way to find out this cost is to consult insurance brokers and get your quote for the said policy.

How to find a good insurance broker?

In addition to helping you find the cost of the insurance, a good broker will also assist you throughout the buying process. They can help you discover better PI insurance plans from top insurers, compare those plans against each other, and then make an informed purchase decision. If needed, these experts can even customize the plan to better suit your distinct coverage needs and requirements.

But, of course, finding one such insurance broker is a challenge in itself. To help you with that, here are 7 tips:

  1. Licensed or not– There are many insurance brokers out there. Not all of them are right to hire. The first thing to consider in this process is to ensure that the insurance broker is IRDA-registered and has the right license. Always go with the licensed insurance brokers.
  2. Do they have “relevant” experience– Just saying “we have 5 years of experience” isn’t sufficient. What kind of experience are they talking about here? You want an insurance broker by your side who has relevant experience wherein they have worked with other freelancers. More specifically, have they worked with a freelancer like yourself (in the same industry)? If yes, that’s a big plus point.
  3. Their expertise– Does this broker has the expertise of dealing with business or liability insurance policies? Do they have an adequate understanding of professional liability insurance and other policies that you’re planning to buy? Look at their expertise.
  4. End-to-end support– You already have too much on your plate to take care of; you don’t want the burden of buying the insurance by yourself. Besides, this requires proper knowledge and understanding to get the right coverage at a low premium. So, you want to find an insurance broker that offers end-to-end support, right FROM helping you find a plan TO preparing your documents TO customizing the plan.
  5. Great to talk to– This may seem very basic but it’s incredibly important. You want to work along with an insurance broker who understands your needs and connects with you well. You want the communication with them to be prompt and efficient for the desired returns. So, make sure they are great to talk to; you feel comfortable and confident when talking to them.

Final words

These are five simple tips to hire a good insurance broker whom you can rely on.

Find a good insurance broker and then find out the kind of insurance policies you need and how much they would cost you.

Remember, insurance for freelancers is very important. You can never tell when and on what ground your client may decide to sue you. So, it’s always a good idea to stay prepared for such events.

Besides, in many niches, the freelancers are required to have liability insurance policies mandatorily – because the client will only hire services provider that has good insurance coverage. If this is the case in your niche and with your client, there’s no other way but to have the relevant insurance policy.

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