... where visionaries, game changers, and challengers discuss business models
As a new business or sole trader, working out the complicated world of insurance and taxes can be difficult. But it is extremely important for your business model and its long-term viability. Insurance, in particular, is necessary in order to prevent a disaster in the case of legal action against you from a client.
So, what is professional indemnity insurance and how can it protect your business model in the long term expansion?
What is It?
If you give or provide a professional service to a client, then professional indemnity insurance (also known as PI or PII) is a vital asset to you and your business. If they make a claim against you citing non-performance, professional negligence or a breach of contract then it is a vital element for you to have.
At its heart, PI is the ultimate safety net for you and your business in the case of the worst-case scenarios.
Is it Compulsory?
A big question that many people - especially those working as sole traders or contractors - is whether or not professional indemnity insurance is mandatory or not. And the short and simple answer is that under the law it is not a rigid requirement.
However, there are some professional bodies and professions require it for you to practice. For example, anyone working as an IT contractor would need their own policy before an employer would consider hiring them in most cases.
Others professions where it is a requirement include solicitors, financial advisors, accountants and architects.
What Does It Cover?
The most basic of cover helps to pay towards legal fees and payouts if a client was to make a claim against you.
This is important for any business model, but especially one that - fundamentally - relies on you alone for financial viability. If you are rocked by a legal case as a solopreneur and are not covered, it can destroy both you and your business financially. As a payout often considers the financial loss a client has suffered, this can often be too much for you to possibly cover along and so the policy is a good backup.
How Much Cover Do I Need?
Typically, your policy should cover an amount between £50,000 and £5 million. It is difficult to know how much cover to gain in such a wide spectrum, so asking the professional body you are a part of how much they require is often the best course of action. For many, a basic plan is enough.
But, if you are in a high-risk profession in regards to client action then you may have to go for a bigger policy.
Overall, the right insurance is vital to your business model. As, without it, it could all come crumbling down around you in the end. Invest in the beginning to avoid heartache down the line.