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Professional Liability Insurance Basics for IT Subcontractors

IT subcontractors may need Professional Liability Insurance in order to sign a contract with a client, which means this coverage can be the difference maker when it comes to earning your paycheck.

Given how important this coverage can be, let’s review the basics of Professional Liability Insurance: how it benefits technology businesses, what it covers, when subcontractors should have it, and how much it costs.

Subcontractors & Professional Liability Insurance

Because they’re typically not covered by their client’s policies, subcontractors are often required to carry their own insurance policies, including…

For this article, we’ll focus on Professional Liability Insurance. But if you’re curious about other contract requirements, check out “What You Need to Know about Subcontractor Insurance.”

When Do Clients Require Subcontractors to Have Professional Liability Insurance?

If you work as a contractor, you typically won’t be covered by a client’s liability insurance. By requiring subcontractors to carry their own liability insurance, clients protect their business from the cost of IT-related mistakes.

Subcontractor insurance requirements may come up in various ways:

  • If you’re hired as an independent contractor, you’ll need coverage that meets your client’s requirements.
  • If you’re working as an IT project manager, you’ll probably need to carry your own coverage and check the Certificate of Liability [PDF] of any subcontractors you hire to make sure they have adequate coverage, too.

To make sure your coverage meets a client’s requirements, you should always check the contract and look for Professional Liability provisions. Verify that your coverage limits are at least as high as the minimum in a client contract.

What Is Professional Negligence?

One of the reasons subcontractors have Professional Liability Insurance is to be covered for lawsuits over professional negligence.

Negligence is one of those words that everyone has heard and used, but is still hard to define. Legally speaking, negligence means you failed to take steps that could have prevented harm to a client. For example, a client may accuse you of professional negligence if you failed to configure their software correctly. Such a failure could mean your client lost data or functionality, resulting in a lawsuit.

Professional Liability Insurance can help cover these oversights and protect you from the cost of a professional negligence dispute.

What Does Professional Liability Insurance Cost?

We have detailed information about the cost of Professional Liability Insurance for IT professionals and subcontractors. If you’re looking to insure your business, here’s what you might pay as a small tech company:

  • Independent contractors typically pay $1,000 to $1,500 in annual premiums.
  • Small consulting companies typically pay $2,500 to $4,500 in annual premiums.

Of course, these numbers are only rough estimates. Depending on your industry, coverage history, and revenue, your actual insurance costs will vary. But these should give you a rough estimate of what the run-of-the-mill IT professional pays for coverage.

What Is Professional Indemnity Insurance?

Professional Indemnity Insurance is another name for Professional Liability Insurance (which can also be called Malpractice or Errors and Omissions Insurance). These names all refer to the same coverage.

Professional Liability Insurance goes by different names in different industries, while essentially serving the same purpose. It has so many names, we decided to write a page (“The Many Names of Professional Liability Insurance”) to explain why.

What to Do if a Client Requires Subcontractor Insurance

If your clients require Professional Liability Insurance, here’s what you’ll need to do:

  1. Check the contract to review insurance requirements (i.e., policy limits).
  2. Contact an insurance company to obtain adequate coverage.
  3. Be prepared to give your client a copy of your Certificate of Liability Insurance to prove that you have coverage to meet the minimums outlined in the contract.

If you need coverage ASAP, fill out an application with TechInsurance for free insurance quotes.