As a contractor, do I need to take out professional indemnity insurance (PI)?

Professional indemnity insurance covers you against the cost of litigation in case of your negligence when working on clients affairs.

Working as an independent professional can give rise to insurance issues that would not occur if you worked as a company employee.

Professional indemnity insurance covers you against the cost of litigation in case of your negligence when working on clients affairs. It protects your business against claims for loss or damage made by a client or third party if you make mistakes or are found to have been negligent in some or all of the services you provided. PI insurance will also cover legal costs.

In many professions, individuals are required to have PI insurance cover as a regulatory requirement or as part of their professional authorisation. This includes solicitors, accountants, architects, mortgage intermediaries, insurance brokers and financial advisers. Others such as consultants, advertising and PR professionals, and designers choose to have this type of insurance. In some industries, agencies will insist that you hold this cover.

The amount of cover you will need will depend on the type of work you are doing, but cover of £250,000 to £500,000 is probably sufficient for most assignments. Ultimately it depends on how much damage you could do to your client if things went wrong.

The premium for cover at this level is currently in the region of £200 to £250 per annum. If you work in a particular industry or are a member of a professional association, you should consider approaching one of the brokers that deal with your particular industry or association, as they will be specialists in your field. An insurance broker that specialises in the consultancy market, that we recommend, is Hiscocks.

In order to avoid paying unnecessary premiums, it is recommended that you wait until immediately prior to starting your first assignment before you take out this insurance for the first time.