When it comes to insuring a consulting practice there is one key question that you need to consider: do I provide my clients with advice? This key question can help you determine whether you need a specific type of insurance for your business – professional liability. The risks associated with providing advice can be costly for your business if not addressed – and sometimes, even after you retire!
If you provide clients with advice then in general, you will be liable for any losses or damages caused by that advice. So you’re a sound engineer and a Museum seeks your advice in setting up the sound for a new exhibition. You advise your client that they should hire a certain type of sound system and they act upon your advice. The big day comes and the exhibition is unveiled only to receive bad press due to poor quality sound. Ticket sales plummet and the Museum ends up losing money, threatening to take you to court.
In such scenarios, if someone sues you for suffering financial loss as a result of your advice even if they aren’t successful you may incur a considerable legal bill. When it comes to claims against professionals, legal costs and expenses can quickly sky-rocket due to the ensuing complex litigation process. Additionally, even if you retire the advice that you previously gave can actually come back to haunt you, for example if it took 30 years for structural defects to emerge on a bridge that you designed.
A professional liability (also known as professional indemnity) policy can cover you for settlements, compensatory damages awarded against you as well as legal costs or expenses incurred by you in defending certain legal actions. Typically an insurance company will employ specialised claims personal (often lawyers) to handle such claims.
Buying professional liability on your own can be a little difficult for the most part because insurance companies will not deal directly with you – rather you will need to go through an insurance broker. That said, the insurance broker will be a qualified (and insured) professional capable of advising you of the best type of professional indemnity policy to buy – so make sure that you check their insurance credentials!
September 22nd, 2010 at 4:31 pm
Hi Sandra,
It really depends upon how much revenue you expect to receive. For example, say you expect to make $100,000 in the first year then you’d probably be paying something like $1,600-$1,900 as an annual premium.
Of course, it is unlikely that the insurance company will sell you a professional indemnity policy directly but rather refer you to an insurance broker.
We can have one of our qualified broking partners call you to arrange insurance on your behalf and advise you on the best options available.
Cheers,
Vincent.