A sole trader’s quick guide to insurance
Do I need insurance if I am working as a sole trader?
When working for yourself as a sole trader, it is a good idea to research whether your industry carries the risk of professional errors and omissions. One way to protect yourself from this risk is to obtain insurance that will protect you from claims made by clients who have experienced financial loss due to alleged errors and omissions.
Freemeup has partnered with the awesome team at GYB Insurance Ltd. In this blog, they have provided a sole trader’s quick guide to insurance! They answer some key insurance questions to help you understand your insurance requirements and explain how obtaining these policies can reduce your risk.
What policies would be suitable for me as a sole trader?
We recommend a holistic approach to Liability insurance. There are several insurances designed to cover not only your professional risk but also your general and occupational liability. A typical package consists of the following covers:
- Professional Indemnity: protects you from claims made by clients who have experienced financial loss due to alleged negligence, errors, omissions, or breach of professional duty concerning professional advice, design, or formula by you or your business.
- Public Liability: protects you and your business from financial consequences if you are found responsible for the loss/damage to someone else’s property. It also protects you if you cause illness or injury not covered by ACC.
- Statutory Liability: protects you and your business against unintentional government acts or statutory breaches, by covering defense costs, fines, and penalties.
You never fully appreciate the value of an insurance policy until the day you need it.
How much cover should I get as a sole trader?
Policy limits vary. You might find that you’re contractually obliged to carry a certain amount of cover. Otherwise, you need to consider your maximum exposure (i.e., worst case scenario) as the policy limit needs to cover a combination of your defense costs, financial loss, and/or reparation awarded to the claimant(s), and potentially their legal costs.
When deciding on an appropriate level of cover, it’s important to consider the type of clients you’re dealing with (e.g., are they litigious?) and the value of the projects you’re involved in.
For contractors using the Freemeup Insurance service, the minimum sums insured provided are based on contractual obligations when using the ACENZ Short Form Agreement for consultant engagement. The Freemeup Insurance service includes the following policies:
- Professional Indemnity – $1,000,000 any one claim, $2,000,000 in the aggregate
- Public Liability – $2,000,000 per occurrence
- Statutory Liability – $500,000 any one claim
It is also important that you choose an excess level that is realistic and affordable at short notice, as the excess often forms the first part of any claim.
The default excess levels for the Freemeup Insurance service are as follows:
- Professional Indemnity – $5,000
- Public Liability – $500
- Statutory Liability – $500
All are inclusive of legal/defense costs. In other words, they are the first and uninsured portion of any claim.
What do I do if I need to claim?
If you receive a written demand seeking damages for an alleged wrongful act or become aware of any circumstances that you think could result in civil action against you, you should notify your broker. They will advise the insurer and provide directions to you.
Early advice is vitally important to ensure that you do not prejudice your and your insurer’s position in respect of the management of these proceedings.
Insurers may also require that you:
- Do not advise any party that you have notified your Insurers.
- Do not admit liability without their prior written consent.
- Do not incur any defense costs without their prior written consent.
- Keep them informed of developments as they occur.
What happens when I stop working for myself?
In order for a Professional Indemnity policy to respond to a liability claim the following criteria must be met:
- The policy is in place when the advice is given, or advice is provided after the ‘Retroactive’ date on the schedule.
- The policy is in place when the claim is made against you.
- The policy has been continuous (i.e., uninterrupted between 1 & 2 above).
If you lapse the policy, you lose all retroactive cover. Ordinarily, when a consultant retires, we recommend that ‘run-off’ insurance is taken to cover the liability ‘tail’.
The premium for run-off cover (assuming no claims occur) typically tapers off after the first year to allow for the diminishing risk. Generally, a 6-year period of run-off is recommended (renewable on a 12-month basis).
You may also find you are contractually obligated to carry Professional Indemnity cover for 6 years after the completion of your services in accordance with the Limitation Act.
If you want to work for yourself, or already do so, but don’t have insurance coverage, get in touch with us at freemeup.
By signing up for the Freemeup Insurance service, we can get your business’s Professional Indemnity, Public Liability, and Statutory Liability insurance policies sorted out. And the best part, you only pay us when you start earning*.
We understand finding the right insurance cover can be overwhelming, so we have done the hard work and designed policies suitable for sole traders.
Freemeup has partnered up with the amazing team at GYB Insurance Ltd to provide the Insurance service to you. This amazing team of experts can also help you out in the event you need to make a claim, and will support you during the process.
*Service Agreement applies
Disclaimer: All content provided on freemeup.nz is for informational purposes only and is intended as a general information resource regarding the matters covered. It is not tailored to cover specific situations and circumstances and shouldn’t be taken as direct professional advice. Freemeup makes no representations to the accuracy or completeness of the information found on this site or found by following any links on this site and will not be held liable for any losses, injuries, or damages from the use of this information.
