Business insurance can protect your technology firm if you are sued by an unhappy client or another third-party.
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In our modern economy, information technology increasingly touches every sector of our business lives. As an IT professional or owner of an IT business, your clients count on you to build, operate and maintain the technology systems that power their businesses.
While you strive to provide the best service possible, occasionally things don’t go according to plan. Projects can be delayed, code can contain undiscovered bugs, and misunderstandings can occur. Clients may be unsatisfied with your work and can sue you, regardless of whether your company is at fault or not. In the event that you are sued, comprehensive insurance coverage can reduce the negative financial impact on your company.
Additionally, your IT business is exposed to similar risks as most other kinds of businesses, such as accidents or natural disasters. If a client visiting your office trips and injures himself, or a fire burns down your offices, having the right insurance coverage can help protect your business from the financial repercussions of these kinds of incidents.
Whether your business offers IT consulting, app development, IT staffing, or web development, your business can benefit by carrying the right insurance policies.
Types of Insurance for IT Professionals
Professional liability insurance (also known as errors and omissions insurance) is designed to protect your IT practice in cases of alleged negligence. Because IT work can be quite complex, and because the technology space is constantly evolving, clients might file suit against you for many reasons including:
- Mistakes or oversights in IT consulting or project work
- Incomplete or poor work product
- Negligence on the job
- Missing deadlines
- Mismanaged projects
- Intellectual property infringement
- Server crashes
- Exposing clients to data breaches
- Code or applications with major bugs
If any of the events listed above causes a client to sue you or your business, professional liability insurance will cover the associated legal costs required for your defense, as well as any judgments or settlements against your company.
There are several important considerations to keep in mind when shopping for your professional liability plan. Clients may sue you or your business even when you haven’t done anything wrong, simply because they misunderstand the nature of your work.
Also, different insurers offer different coverage options. Therefore, it’s important for you to carefully review what each provider offers, and weigh your options against one another.
Professional liability insurance provides coverage for your employees as individuals, as well as your company as a whole.
- A former client experiences a data breach, and they claim that it occurred as a result of an error you made in programming their web application’s security protocols. They sue your business even though the problem was caused by the client’s insufficient adoption of cyber-security best practices.
General liability insurance provides coverage for your IT business in cases where somebody experiences bodily injury or property damage while you’re conducting business. General liability isn’t specific to the IT field—it is generally useful for any type of business.
For instance, any IT operation is subject to premises liability—when an injury occurs on a work site. Regardless of whether you operate as an individual or as the owner of a larger business, you may be subject to claims holding you responsible in these instances.
- You operate a data center on behalf of a client. Your client visits the data center, and he trips over a set of computer wires that were left out. The client sues your company for the medical expenses and lost wages that they incur.
Commercial property insurance helps protect your business if your work space is burglarized, or hit by a major weather event or a fire. This form of insurance will provide for the repair or replacement of your physical assets in the event of fire, windstorm, theft, vandalism and more.
For IT professionals, commercial property insurance can provide protection for your servers, computers, tools, electronic equipment, or other valuable property owned by your business.
A business owner’s policy combines commercial property coverage and general liability coverage into a single plan, providing premium savings to qualified small businesses.
Workers’ compensation insurance is legally required of IT businesses in most U.S. states if you hire employees. It provides financial benefits to employees of a business in cases of work-related injury or illness. Workers’ comp policies cover any medical costs associated with rehabilitation, and provide for a portion of employees’ lost wages while they’re unable to work.
- An employee experiences an electric shock while installing a new computer system, requiring hospitalization and significant time off.
Additional Insurance Coverage for IT Professionals
On top of professional liability, general liability and commercial property, a suite of other options exist for IT insurance. These options may be more or less relevant depending on the nature of your business.
Commercial auto insurance is required by law—just as it is for personal vehicles—to cover all business-owned vehicles. Auto insurance will cover any crashes that occur in company-owned vehicles. This would range from regular matters of business to errands run while on work time. It also can cover damage to or theft of your business owned vehicles.
Another type of commercial auto coverage is “hired and non-owned” auto insurance. This specific coverage is for vehicles not owned by your business, but used for business purposes, such as rental cars used on business trips, and employees’ personal vehicles used for business reasons.
Directors and officers insurance provides protection to directors and officers of organizations, covering legal costs and damages in cases where they are accused of failing to fulfill their fiduciary duties.
Employment practices liability insurance (EPLI) protects businesses against employees claiming wrongful treatment. Examples of wrongful treatment claims include discrimination and harassment from coworkers.
Data breach (cyber liability) insurance covers businesses that are hacked for liability related to data breaches, loss of income, and recovery costs. Perhaps no other profession knows the dangers of cyberattacks better than IT pros. The financial havoc that data breaches, DDoS attacks, ransomware and other malicious attack vectors can cause means that your IT business may benefit from cyber liability coverage.
Umbrella insurance is a broad, supplementary liability coverage that extends the other liability policies you own, such as general liability and auto liability. If your IT business is subject to significant legal and financial vulnerabilities, umbrella insurance goes into effect when an existing policy of yours reaches its limit. Essentially, it’s insurance for your insurance. Because umbrella policies tend to be less frequently used than other forms of insurance, its associated premiums are generally lower than your primary coverage. Importantly, professional liability is generally excluded from umbrella insurance.
Insurance Coverage for Your Employees
If you’re an owner or manager of an IT business, you may want to consider group insurance plans for your employees. These insurance plans are an integral part of a comprehensive employee benefits package that can help you recruit and retain talented employees.
Group health insurance helps employees cover their medical costs. Health insurance coverage ranges from hospitalizations to simple primary care checkups. Employee health insurance helps keep your employees healthy, productive and happy.
Group life insurance provides financial compensation to near relatives in the event of an employee’s passing (work-related or not). Group life insurance tends to be cheaper, per person, than individual life insurance policies.
Group disability insurance provides income to employees who cannot work due to a non-work-related injury or illness.
Who needs Information Technology Business Insurance?
It is advisable for every IT business to own insurance policies. Insurance not only protects against unexpected lawsuits and claims against your business, but it also demonstrates to clients that your business is reputable. If any of the following applies to your business, you may want to have business insurance:
- You work with clients
- You hire employees
- Your business owns significant property (e.g. office buildings and company cars)
- You have digital data, servers, networks, and other infrastructure that needs protecting
In addition, in some cases client agreements will require IT contractors to have insurance that will cover their work. It’s also important to remember that clients can be unpredictable.
You may not be able to account for all potential problems that clients may have with you or your work. If work is not completed to your clients’ satisfaction, you may find yourself the recipient of a lawsuit, regardless of whether or not your business is at fault.
Certain insurance policies are also required by law of IT businesses. Workers’ comp and auto insurance are examples of insurance that IT businesses may be required to carry if they hire employees or own business vehicles.
IT Insurance can cover professionals in a wide variety of occupations. Some common occupations that need Information Technology Business Insurance include:
How to Get Insurance for Your IT Business
Choosing an Insurance Company
Below, we cover several important factors to consider when choosing an insurance company.
The financial strength of the insurer: Claims are paid out from the financial reserves of the insurance company you choose, so it’s important to select an insurer in a strong financial condition.
It is quite rare that an insurance company should experience the sort of financial trouble you’d have to worry about, but it’s not entirely unheard of. For this reason, it’s safest to buy from a reputable, large company with deep pockets.
The next question would be: how do I tell if an insurance company is stable? Ratings agencies offer grades to companies, based on their financial strength. The most reputable of these agencies are Standard & Poor’s, Fitch, AM Best and Moody’s.
Choosing the right price: The best way to determine which policy makes most financial sense to you is to weigh all your options from multiple providers. Brokers and online quotes will help you get a sense for the market, so you can find the best deal.
Naturally, the cost of a policy will vary with the size of your company and the nature of the IT work your company does.
Choose an insurer with a reputation for strong customer service: While finding the best deal might be your first priority, customer service is going to be the thing you live with for the length of your policy. The last thing you’ll want is a provider with poor customer service in the event you have to file a claim. Call up a few providers before deciding on one—it’s a good way to test out their service.
Any insurance policy will have a defined policy period, which is most commonly one year. When your policy year ends, your insurer may offer you a renewal contract. The insurer may make changes to the policy from year to year, and may also change the price. The insurance company will notify you in advance, and in writing of any changes.
The insurance contract will denote whether you’ll be able to cancel your policy before your policy period ends, how much notice you’ll need to provide your insurer in order to cancel, and whether your insurer will be required to refund you for prepaid coverage if you do choose to cancel.
Most insurance policies include a grace period for late payment. These windows can range from 30 days to just 24 hours, though, and your contract might allow your insurer to cancel your policy if you miss it.
Limit of insurance
Every insurance policy has a specific financial limit: the maximum amount of an insurer will pay for claims. You can probably already tell how important an insurance limit will be, so you might want to discuss your limit options with your provider, agent or broker prior to signing onto a new policy.
Two categories of limit exist for every insurance policy: “per occurrence” and “aggregate”. Per occurrence limits the maximum payment for any single claim, while the aggregate accounts for every claim you make during the entire year of coverage.