Why do IT consultants need insurance?
As an IT consultant, at some point, you will come across a client who will contractually require you to have certain types of insurance, such as professional indemnity.
However, contractual obligations aside, it's worth asking, “What other risks do I face?” “Should I be operating without the right insurance?” and “How will it protect me?”
Working independently sometimes doesn’t go according to plan. As a self-employed IT consultant, you will be the one to ultimately face any challenges that come with running your own business.
Contract compliance
Most contracts you will engage with as an IT consultant will stipulate you must have and show proof of certain types of insurance, but this should never be just a box-ticking exercise.
Accusation of causing a financial loss
An unhappy client may allege your work or advice ended up costing them money, which they now want to recover from you.
Property damage or injuries caused by you
If you work on a client site or spend much time meeting customers face-to-face, you may also risk damaging someone else's property or causing personal injury.
IR35 enquiries and unpaid invoices
If you use an umbrella company or contract directly, you could be exposed to IR35 enquiries from HMRC. Regardless of how you're engaged, you could be subject to late or non-payment of invoices.
Damage to your work equipment
You are likely to use a laptop or computer for your work, and if that gets stolen or damaged, the repair or replacement costs could be expensive.
Professional indemnity insurance for IT consultants
Professional indemnity insurance is the first insurance policy IT consultants should consider due to the advisory nature of their work.
You may be consulting in several areas, such as cyber security, system integration, application migration or architecture, with much of your work being strategic, involving recommendations and a high level of responsibility.
Working as a consultant comes with inherent risks, so professional indemnity insurance is critical whether or not your contract requires it.
Professional indemnity is a legal cover that insures IT consultants against professional mistakes, accusations of negligence, breach of confidentiality and more. It covers the associated cost of a legal defence and will pay any compensation if you are found liable.
What does IT consultant professional indemnity insurance cover?
Professional indemnity protects IT consultants from legal claims or accusations of wrongdoing stemming from their professional advice or work product.
Cover includes:
- Giving the wrong advice or recommendation
- Making a mistake
- Acting negligently
- Failing your duty of care
For example:
- An unclear brief has led to unmet client expectations. The client may demand a remedy at your cost.
- Your recommendation or advice led to your client’s system failure, costing them money. They are asking you to pay for the loss.
- Demands of compensation due to delays, errors, or incomplete work causing financial losses
- The leak of sensitive or confidential information
As an IT consultant, the risk of facing one of the above or another issue resulting from providing advice in the technology space has increased directly in line with the uptake of technology in pretty much every industry.
How much professional indemnity does an IT consultant need?
In the UK, professional indemnity limits can start from £50,000 and go up to several million. The limit is the maximum amount the insurer will pay in the event of a claim.
The appropriate limit for you depends on the nature of your IT consulting work, the size of your client accounts and any contractual obligations you have.
Every contract you enter into is likely to state the limits of liability that both parties agree to. As a starter, think about buying a professional indemnity limit that matches or is greater than this limit.
Remember that legal costs can often accompany any claim against you. For example, if the limitation of liability clause in your contract says up to £1,000,000, you may be required to pay £1,000,000 in compensation to your client, plus you pay your legal costs. So look for a limit which is greater than £1m.
Switching your professional indemnity insurance
Typically, in the UK, if you cancel a professional indemnity policy, you can no longer claim against it.
Therefore, if you switch your IT consultant insurance provider, be sure your new policy covers your past work; this is called “retroactive cover”.
Should I retain professional indemnity insurance if I am between contracts?
It’s wise to keep your professional indemnity if you’re taking a break or retiring from IT consulting. Claims against professional misconduct can surface months or years after you delivered the work.
Remember: If you cancel your policy, your insurance coverage will end, including coverage for any previous work.
How long you keep your cover in place is up to you. Consider the type of IT consulting you did and the likelihood that a client might bring a claim against you.
Public liability insurance for IT consultants
If you regularly consult with clients face to face or work at their premises, public liability insurance is wise. Public liability protects you against accusations of causing an accident leading to an injury or property damage.
Public liability can be inexpensive protection against unfortunate incidents such as slips, falls, or you causing damage to a third party’s property. Public liability claims rarely result in substantial compensation, but legal defence costs can add up.
What does IT consultant public liability insurance cover?
Public liability is helpful when faced with injury claims and compensation demands.
Cover includes:
- accidental injury or death
- accidental property damage
For example:
- A client visits your premises and is injured in a slip or fall
- You visit your client’s premises and accidentally damage expensive IT equipment
Other insurance IT consultants buy
As an IT consultant, the additional insurance coverage you require will depend on your situation. It is important to consider if you have the financial capability to replace or repair any computer equipment that gets damaged. Additionally, it is wise to consider how you would handle a legal dispute, as well as what steps to take in case of a tax audit by HM Revenue & Customs.
Commercial legal expenses insurance
Most commercial legal expenses insurance will protect IT consultants against various tax and legal issues you may encounter due to your profession, which are not covered by professional indemnity or public liability.
At Suited, we combined £100,000 of commercial legal expenses insurance with helplines and other tools to better assist IT consultants in dealing with these issues. We call this Business Legal Protect, and it’s part of your subscription.
Business Legal Protect offers qualified advice and assistance with:
- Legal and accountancy matters concerning your business
- Criminal prosecution
- Compliance & regulation issues
- Unpaid invoices (over £200)
For example:
- HMRC flags you for an IR35 investigation
- You need legal help chasing a major unpaid invoice
- You need guidance on compliance issues for your business
Electronic business equipment insurance
As an IT consultant, you’ll likely rely on everything electronic to deliver your work. As such, you may consider adding electronic business equipment insurance to cover your computer kit.
Electronic business equipment insurance will cover the cost of repair or replacement if your equipment is lost, damaged or stolen.
Business expenses insurance
As an independent consultant, it would be difficult to continue to earn if a critical illness struck you.
Business expense insurance is a good backup plan for such a situation. The cover will provide a financial lifeline for several months until you get well enough to return to work.
We have combined business expense insurance with personal accident insurance in our Business Owner Protect product at Suited.
IT consultants we insure
Suited provides insurance coverage for a diverse group of IT consultants, including:
- Computer consultants
- CRM systems consultants
- Cyber security consultants
- Database consultants
- Disaster recovery consultants
- Software consultants
- Technology consultants
- Telecommunication consultants
- Website/Mobile app consultants
- and more...
Shopping for independent IT consultant liability insurance
When you're in the market for IT consultant insurance to safeguard your business, it's worth keeping in mind the following:
Cheap IT consultant insurance
Don't just focus on the price of IT consultant insurance. Consider the quality of after-sales service, like accessibility and response time. At Suited, we offer multiple contact options and aim to respond quickly.
The reputation of the insurer is important
It is often tempting to purchase the cheapest deal on the market. Double-check who you are buying from and the insurers underwriting your policy. This information should be made very clear to you before purchase.
Many providers charge fees to amend or cancel
Occasionally, updates to your personal or business details are needed. Check with your provider if there are additional costs to amend or cancel your policy. At Suited, you can change or cancel your policy anytime for free.
Some policy wordings are restrictive or have a high excess
Some providers will offer attractive prices, but it is at the expense of cover given. Suited professional indemnity and public liability have £0 excess.
