Making sure you’re covered: Insurance 101 06.10.2015 : 16:09pm
Insurance, what the? Why do you need that? As a contractor you need to be aware that you may need cover for those “just in case” moments. Even if you’re fully on to it, you may have grown cynical over the years about things like indemnity insurance, feeling like you have to take it out, and it’s all a bit of a money pit considering “it will never happen to you”.
But obviously things can happen, and clients can take action. And they can take it well after you’ve actually finished your work for them. Hence why you need to be aware of all these legal and technical sounding bits and bobs.
Professional Indemnity Insurance
Indemnity insurance in a nutshell protects you and your business against any allegations or claims that may affect your reputation, income and all that good stuff. The type of insurance can differ depending on what you’re offering so it’s worth talking to a pro about it.
The Limitations Act
This little legal act is something you can’t wormhole your way out of. Because basically, it is this wonderful piece of legislation that gives your clients a six-year window in which to sue you, even after you’ve finished work for them. Six years! That’s a blimen long time. I highly doubt this one thrills most of you.
But this is why you need to factor in the cost of insurance to your pricing, and not just short-term insurance but six years worth. Using the lowest price point out there this can equate to $1,800 + GST in insurance costs alone just to cover your butt. But no doubt you can Google it all up and find a provider that works for you at a price point that you can work with.
With the contracting market fluctuating, once a contract is completed altering your insurance policy to decrease cover and premiums can be the easy option. In fact, it’s often the first thing to get shafted from your balance sheet, especially if a contract has specifically asked you to have cover well beyond what you normally would.
However, this overlooks the fact that if a claim is made against you, the limit applied is the one there and then, not the one you had at the time you did the work for that client. So in short, you need to make sure you renew your cover on the highest limit you’ve agreed to, especially if it has been a contractual obligation.
We know this can all be a tad confusing but here’s a wee example:
You have a $1,000,000 annual policy but a three month contract requires you to have $2,000,000. You increase your limit, pay the additional premium and when the contract finishes you reduce your insurance limits back to $1,000,000. The following month you receive a notice of a claim against you for that three month contract. The limit you have is now $1,000,000, so you’re left frantically trying to sweet talk your way to another $1,000,000 from banks and insurance companies. As a result, the client can also sue you for breach of contract for saying you carried $2,000,000 cover when actually you now only have $1,000,000.
So the moral of the story (cuz’ everyone loves a good moral) is that you need to have a good think about a) whether you want cover, and b) the level of cover and your policy limits.