As a consultant, you probably enjoy the benefits of working for yourself, which means you can set your own hours, take off when you want, and enjoy other perks related to owning your own business. The best part is you get to do what you love, which is to help people with their Information Technology services. Because you are in the business of giving advice, installing, recommending, testing, and possibly building things for these clients you may have the opportunity to run into some problems. Some clients may not get what they expect from you, they may simply be unhappy with the outcome, or you could make a mistake which causes financial hardship to them. Whatever the case may be you must have Professional Indemnity Insurance for IT Consultants.
You may hear Professional Liability insurance also referred to as Errors & Omissions insurance, or E&O. Calling it that may help you better understand what it covers, as it is really in the name. Professional Liability insurance has a lot of coverages built into it and these are just a few.
Personal Injury– In the IT industry, you will likely have competitors. This opens the doors for some friendly competition as well as some not so friendly. If you decide to post something on social media or say anything to a customer or other third party, about your competitor that is negative that could open you up to the chance of a libel or slander lawsuit.
Negligence- In a consulting role, there will be times where you have an unhappy client. Sometimes these unhappy clients can claim that you were negligent. An example would be if you built a website for a company and the day it went live there was a glitch, and they were down for days. While you may have not intended for this to happen, you are ultimately responsible and if it causes the client money you would be on the hook. Additionally, you are human and it is possible that you will make a mistake. And more often than not, an Information Technology mistake is found out when it is too late.
Defense Costs- One of the biggest costs for any kind of claim involving a lawsuit is almost always the defense costs. Between court costs and attorneys’ fees, these can cause you to drown before you can even present your case. And it is even more painful if you truly did nothing wrong and have to prove it. Luckily, E&O insurance will cover these costs. Be sure to pay attention to your policy though, sometimes the limit is included with your coverage limit while other policies have an unlimited amount of defense costs coverage available.
Providing a professional service to a client can leave you with a feeling of accomplishment when the job is completed. However, this feeling can quickly turn to dread if a client accuses you of being negligent, breaching a contract, or making a mistake that causes them financial hardship. Often, IT Consultants assume they will be covered for all of these situations under their General Liability insurance. Sadly, this is not the case as General Liability is for bodily injury and property damage to a third party. Think a slip and fall or damaging a clients’ computer while attempting to do your work.
IT Consultants, as with any kind of professional service, do need Professional Liability insurance. Without it, you could not only face bankruptcy and the shutdown of your business, but your credibility could be thrown out the window. Without the proper insurance in place, many companies that you may want to do business with will pass on the opportunity as well if you are up against another consultant that is more responsible and has the right insurance portfolio.
When it comes to making a living, the Information Technology industry is a great way to go. There will never be a shortage of jobs because of the way technology is headed. There will always be a need for IT Consultants and while it is a positive outlook on a career, it comes with its own set of challenges. The sheer number of scenarios that an IT Consultant could face that might turn into a lawsuit would be impossible to cover here, but here are 4 reasons why IT Consultants need Technology E&O.
Mistakes – Everyone makes mistakes. Regardless of the amount of training you have, the education you receive, and work experience you have under your belt it is still a very real possibility that can have dire consequences. In the IT field, the smallest of mistakes can cause the biggest damage. Surely you are extremely careful, but no one is perfect so you should have insurance for this reason alone. Be prepared for the unexpected always.
Unhappy Clients – Let’s face it…sometimes there will be clients who are not happy. Maybe they did not like the work you completed for them, maybe they think you breached a contract, or maybe you are even unable to complete a job that you said you would. All of these scenarios are grounds for a lawsuit and without Technology E&O, or Professional Liability, you will be left with a huge gap that you will have to reach into your profits for. All of your hard work will have been for nothing.
Defense – If you have ever needed a lawyer than you understand that they can cost a lot of money. Like you, they are professionals in their field and are paid accordingly. Add this to the fees charged by the courts and you could be looking at tens of thousands of dollars or more depending on the severity of the claim. Hopefully in any of the above situations, you will be able to solve it quickly and without making the client unhappy, but it will be better for you and your business in the long run if you are prepared for the what if’s.
Contracts – Sometimes you will be signing contracts to work for other people or companies. When this happens, there is likely going to be a section of the contract that addresses insurance requirements for you. Professional Liability will absolutely be there since you are providing a professional service. While this is not the only reason to have the proper insurance for yourself, but it certainly is a great one.
As with any insurance policy, Professional Liability insurance will vary for each person or business. Because each IT Consultant is going to be working with different industries, doing different things, and has different exposures this will be part of what determines the premium of the policy. Additionally, experience, your annual sales, and if you have employees will all be things the insurance company will consider when providing a quote.
Certainly the more business you do the higher your exposure to risk, so you will most likely pay more than someone who is only dealing with one or two clients a year. While it is impossible to give a number, you can expect to pay at a minimum $1,000 annually for the standard coverage amount of $1,000,000. Some things you can do to help with the premium is stick to a particular industry, choose to have a retention amount which is like a deductible, and be sure to not have any claims history. While growing your business is a great thing, keep in mind that this will cause your insurance premiums to rise as you take on more and more risk.
Many times, any agreement that you enter into with another party will have insurance requirements. These are the most standard insurance requirements, but be sure to have any contract reviewed by an attorney and any insurance policies that do not apply to your business should be removed.
General Liability – Every contract is going to require that you have at least $1,000,000 per occurrence and $2,000,000 per aggregate for this policy, and some will even ask for more depending on the scope of the project.
Professional Liability – This is usually required for an IT Consultant because of the nature of the job and the standard limit for this is $1,000,000. Some insurance companies will allow you to increase the limit but it will be rare.
Commercial Auto Liability – Most contracts require a $1,000,000 auto liability limit depending on the scope of work.
Workers Compensation – You will see Workers Compensation in your contracts and if you do not have employees then it will not apply. If you do, make sure you have statutory limits and most contracts will state that they would like you to have an Employers’ Liability limit of $500,000 and sometimes even $1,000,000.
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