The work you did in the past may still catch up with you in the future and since professional indemnity insurance (PI) works on a ‘claims made basis’, you won’t be able to access its benefits unless you have an active PI cover in place.
Why can’t you just cancel PI cover if you stop working?
For many self employed and freelancers cancellation is a tempting option in order to save money which is understandable. Unfortunately this approach can leave you legally exposed if a past professional mistake catches up with you after you’ve cancelled your professional indemnity insurance.
For example an IT project manager delivers a piece of work for a client who many months later discovers an issue with the software which has cost them money. The client is now looking to recover their losses from the IT project manager. However, the project manager insurance was cancelled as soon as the project was over. And it doesn’t matter that they were insured during the project. What matters is when the issue is discovered. And if you don’t have an active policy at that point in time, you’re not insured.
You should never just cancel your PI cover if there’s a chance that a past mistake in your work may give rise to a claim in the future.
What does ‘PI in hibernation’ offer?
In simple terms it covers your past work only. If you choose to hibernate your PI cover, your premium drops significantly and you’ll stay protected against any claims arising as a result of your previous work. By previous work we mean the business activities for which you were insured right before you hibernated your PI cover.
How far back does a hibernated PI cover go?
Your hibernation cover protects you for the period between your retroactive date and the hibernation date, both date inclusive. Every PI cover has a retroactive date.
The date you decide to hibernate your cover is the date when your ‘past work only’ cover starts. In other words you won’t be covered for any work that you might carry out after the hibernation date.
Hibernation vs run off cover
The two are essentially the same. Both cover you for past work only. The advantage of hibernation is that with Suited you can turn it on and off according to your work cycle and keep saving money when you’re not working while staying insured.
What if you stopped working for good?
If there's a risk of your past work resulting in a claim against you, having a run off PI cover is advisable. 6 years seems to be the recommendation of many professional bodies and it is also a common contract condition. If you’re under this contractual obligation then that is what you should ideally do.
However, if the decision is entirely yours, think about the kind of work you have done in the past, the level of risk of something going wrong, the kind of responsibility you had, and if you may have subcontracted some of the work.
The cost of professional indemnity in hibernation is negligible in comparison with the hourly charges of a solicitor you might have to hire to deal with a possible claim.