⚖️ The "Critical Error" That Costs Millions (UK Update)
You sent the wrong file to a printer. Your code update crashed a client's e-commerce site on Black Friday. You gave tax advice that triggered an HMRC audit. If you think your standard "Public Liability" insurance covers this, you are mistaken. Public Liability covers accidents; Professional Indemnity covers errors. And errors are expensive.
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| Sued for a Mistake? Public Liability Won't Help. |
In the UK, the business culture is becoming increasingly litigious. Clients are quicker than ever to sue for financial losses attributed to your professional advice or service.
For freelancers, consultants, and contractors, Professional Indemnity (PI) is not a luxury; it is your primary defense against bankruptcy and a key indicator of IR35 compliance.
PL vs. PI
Most tradesmen need Public Liability (PL). But knowledge workers need PI. Understanding the distinction saves you money and legal exposure.
Who Needs It? (The "Advice" Test)
Ask yourself: "Do I provide advice, designs, or professional services?" If yes, you need PI cover.
🚩 High-Risk Professions:
• IT Contractors: Software bugs causing data loss or downtime.
• Marketing Agencies: Copyright infringement or printing errors.
• Management Consultants: Strategic advice leading to profit loss.
• Accountants/Bookkeepers: Calculation errors resulting in tax penalties.
The "Claims Made" Trap
This is the most critical technical detail. PI insurance operates on a "Claims Made" basis.
This means you must have an active policy when the claim is notified, not just when the work was done. If you retire or close your Limited Company, you must purchase "Run-off Cover" (typically for 6 years). If you cancel your policy the day you finish the contract, and the client sues you a month later, you have zero coverage.
Warning on "Retroactive Dates": When switching insurers, ensure your new policy maintains your original "Retroactive Date." If not, you lose coverage for all past work.
Chief Editor’s Verdict
Even if you successfully defend a lawsuit, legal fees alone can exceed £50,000. Professional Indemnity covers both the damages and the defense costs.
For roughly £20-£30 a month, it buys you the peace of mind to focus on your deliverables, not potential litigation.
The information provided in this article is for educational purposes only and relates to the UK insurance market (ABI guidelines). It does not constitute regulated financial advice. Insurance policy terms, including exclusions and excess, vary by carrier. "Run-off cover" requirements may vary based on your profession's regulatory body (e.g., ICAEW, RICS). Always consult with a regulated insurance broker.
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