The transition from an employee to an independent consultant can be an exciting one, providing new opportunities, independence, and control over your working future. But it can also be daunting with new risks, personal accountability, and personal liability.

A range of questions may arise:

  • Can I be sued?
  • Do I fully understand what I am signing?
  • What happens if I get sick?

To protect yourself as a sole trader or business owner, ensuring you have the right professional insurance is essential. If you pay your insurance premium in advance before the EOFY, it also has the added benefit of being a potential tax deduction* this tax time.

Why professional insurance?

Insurance is one of the key pillars of risk management, allowing a consultant to transfer their personal liability to their insurer. With this in mind the primary value is protection. Insurance is the one component of your business you always want to have, but never want to use.

This becomes even more important in consulting practices especially for sole traders or small businesses, where it is not just the business that needs protection but also the personal assets of the individual consultant.

Which insurance?

Keeping costs down is always important, especially when starting a new business, so take the time to understand the different insurances available. Insurance for consultants usually falls into two key areas:

1. Third Party

This cover is designed to indemnify someone else if you cause them to suffer a loss (e.g. design errors). Third Party cover is often mandatory in consulting contracts and the products that are key to a consultant’s business include:

  • Professional Indemnity – your advice is your core business and therefore your core risk.
  • Public Liability – required to get on site, for accidental bodily injury or property damage.

2. First Party

This cover is designed to indemnify you if you suffer a loss (e.g. someone steals your laptop). First Party cover is typically uncomplicated, as consulting businesses are generally portable and asset-light, but some key areas for a consultant to be aware of as the most frequently required insurance products are:

  • Portable Property – can include laptops and cameras, as well as surveying equipment.
  • Corporate Travel – both interstate and overseas, includes medical as well as luggage.
  • Workers Compensation – statutory product for injury to employees.
  • Office Insurance – if you do have a static location that you work from.
  • Income Protection – consultants do not get sick leave so this becomes more important!

High risk areas

It is becoming all too easy for an AIPM member to jump on the internet, label themselves as a “Project Manager”, “Management Consultant” or “IT Consultant” and obtain a quote for insurance.

Unfortunately, this can be a real trap, as direct online products are deliberately simplified and designed in such a way that any deemed “high risk” activity is automatically excluded in the policy wording – in some instances they even exclude “Project Management”.

There has even been evidence of direct products in the market with broad industry exclusions that offer no cover for areas ranging from Mining to Rail to Power Generation and even blanket exclusions for anything relating to Electronic Data losses, irrespective of your own role in the project.

A review of your insurance is always appropriate when your activities change, in particular if your consulting involves any of these areas:

  • Client appointed Project Management
  • Appointment of Sub-Contractors or “Principal Contractor” roles
  • Managing Projects in deemed “High Risk” Industries
  • Overseas Work
  • Design Variations
  • Statutory Roles

These are all trigger points where basic “off the shelf” insurance products may not offer any cover. Simply purchasing an insurance policy alone is not adequate and you are at risk of being uninsured; your insurance needs to be tailored to ensure that your business activities are being covered and your assets protected.

Managing your risk

As a consultant, clients will engage you to offer them a specialist service they cannot do themselves. Insurance is no different. There are too many areas that can cause issues, so consider arranging your own insurance as being effective risk management.

A good insurance broker should not only be able to organise appropriate policies that cover your business activities, but they should also be able to explain why the insurance is appropriate, understand the key risks to your industry, review your contracts to identify on any gaps or uninsured risks, and be a trusted advisor to your business.

To find out more about the professional insurance options available for sole traders or small business owners visit Austbrokers Countrywide, our preferred provider of insurance and financial Services. Also consider paying your insurance premium in full before this EOFY, to add it as a potential deduction* this tax season.

* This is not tax advice; please seek individual accounting advice relating to your circumstances