Professional indemnity and public liability insurance for self-employed professionals
A zzp (sole trader) liability insurance sounds like one of those things you will arrange 'at some point', until a client holds you liable and the bill lands on your doormat. As a sole trader, you are personally liable for damage you cause during your work. In this article, you will read in clear language what the insurance covers, whether you need it, how much it costs and when it is compulsory.
What is professional indemnity and public liability insurance for sole traders?
A liability insurance for sole traders (zzp'ers) covers the financial consequences of damage that you, or someone working for you, causes to another person during your work. As a self-employed person, you are personally liable for this, and without insurance, you pay for the damage out of your own pocket.
Think of a cup of coffee that ends up over your client's laptop, someone tripping over your cable and breaking their wrist, or an installation error causing a leak. Such accidents are easily done, but the subsequent damage claim can add up considerably.
Which liability insurances are available for sole traders?
For freelancers, there are roughly two types of liability insurance, which are often confused in practice: professional indemnity insurance and public liability insurance. They both cover liability, but for very different types of damage. Below you can see what each type does exactly.
Public Liability Insurance (AVB)
Public liability insurance, often abbreviated as AVB in Dutch, covers material damage and personal injury that you cause to others during your work.
It concerns physical accidents in the workplace: you damage a client's property or someone gets injured because of your work. This is the type that almost every freelancer can use, regardless of the profession.
Professional Indemnity Insurance (BAV)
Professional indemnity insurance, in short BAV in Dutch, covers pure financial loss resulting from a professional error. This does not involve dropping something, but rather financial damage due to, for example, wrong advice, a calculation error, a design error or a missed deadline.
Advisory and design professions are particularly exposed to this risk, such as consultants, lawyers, accountants, architects and people in IT.
What is the difference between AVB and BAV?
The difference between the AVB (general liability) and the BAV (professional liability) lies in the type of damage they cover. The AVB is for physical damage to goods or persons, in other words, the mistakes you make at work. The BAV is for financial damage caused by an error in your profession, in other words, the mistakes you make in your work.
Many insurers only offer professional liability as an additional coverage to business liability. If you also provide advice alongside your regular work, you often need both: the AVB for the knocked-over cup of coffee and the BAV for the advice that turns out badly.
Do you need liability insurance as a freelancer?
Whether you need liability insurance as a freelancer depends on your work, but for most, the answer is yes. Your personal liability insurance does not cover damage you cause during your work, so you are not covered as an entrepreneur.
For a sole proprietorship, this is especially critical because you are liable with your personal assets. That same separation of business and private affairs also plays a role in the question of whether to open a business account as a sole proprietorship.
What if you don't have liability insurance as a sole trader?
If you as a self-employed professional do not have liability insurance and still receive a claim, then a few unpleasant situations await you. An accident or professional error can happen in the blink of an eye, and without coverage, you will end up in these situations, among others:
The damage is completely at your own expense: you pay the claim yourself, even if it runs into thousands of euros
Your personal assets are at risk: with a sole proprietorship you are personally liable, and in community of property this also applies to your partner
Your business is put in jeopardy: a large claim can run so high that you are forced to stop
You miss out on assignments: clients who require insurance will then choose someone else
You are on your own in a conflict: you miss the legal assistance and defence costs that the insurance covers
A relatively low premium then quickly outweighs the risk you run.
How does liability differ by legal form?
How your liability is regulated differs per legal form, and this partly determines how important insurance is to you. As a self-employed professional with a sole proprietorship, you are personally liable, so good coverage is of the utmost importance.
If you work together in a general partnership (vof), the partners are jointly and severally liable with their private assets, and it is best to keep matters separate with a business account for a general partnership. If you have a private limited company (bv), the business is a legal entity and your private assets are in principle protected, although as a director you can still be held personally liable in the event of improper management. For these situations, you arrange your financial affairs with a business account for your private limited company, or manage multiple entities from a business account for a holding company.
Is professional indemnity insurance compulsory for sole traders?
Liability insurance is not legally compulsory for freelancers, but in practice, you often cannot avoid it. Clients, recruitment agencies and governments are increasingly demanding insurance before you are allowed to start an assignment, sometimes specifying a minimum insured amount in the contract. In sectors such as healthcare and construction, it has now become almost standard.
For which professions is professional indemnity insurance compulsory?
For a tier of professions, professional indemnity insurance is compulsory by law or through their professional association. This mainly concerns professions where a mistake can have major financial consequences:
Accountant: compulsory via the Netherlands Institute of Chartered Accountants
Lawyer: compulsory via the Dutch Bar Association
Notary: compulsory because of the legal deeds and documents you draw up
Financial adviser: compulsory because of the advice involving large sums of money
Architect: compulsory via the Royal Institute of Dutch Architects
If you do not fall into these categories, a client may still make the insurance a condition before you start working for them.
How much does public liability insurance cost for sole traders?
How much a public liability insurance for sole traders costs depends heavily on your profession, your turnover and the coverage you choose. A public liability insurance is indicatively between 10 and 35 euros per month, and a professional indemnity insurance is often between 30 and 100 euros per month. A common coverage is around 2.5 million euros, with an excess of approximately 500 euros.
Which factors determine the premium?
The premium is determined by a few concrete factors that the insurer weighs up:
Your profession and industry: the more risk in your work, the higher the premium
Your annual turnover: a higher turnover means more risk for the insurer
The sum insured: the higher the coverage, the higher the premium
Your excess: if you choose a higher excess, your monthly premium decreases
How long you have been an entrepreneur: this is taken into account by some insurers
Therefore, always compare multiple providers with the same coverage, because the differences in premiums can be quite substantial.
Is self-employed professional liability insurance tax-deductible?
Liability insurance is tax-deductible for sole traders, as the premium counts as a business expense. You deduct it from your profit, which reduces your taxable profit and means you pay less income tax.
Please note the difference from disability insurance (AOV): that premium is deductible as a private expense in your income tax and not as a business expense. The 21 percent insurance premium tax is already included in the premium you pay. If you are unsure about the correct processing, your accountant or the Dutch Tax and Customs Administration (Belastingdienst) will be happy to assist you.
What is not covered by the policy?
Not everything is covered by your policy, so it pays to read the policy conditions carefully. Damage caused by intent, fraud, or a crime is excluded, as are the costs to repair your own work or to provide a service again.
Important to know: you are only covered for the work listed on your policy. A kitchen fitter who suddenly goes onto the roof to lay roof tiles is not insured for that job, because roofing work is not on the policy. If your work changes, please let us know so that your coverage remains correct.
How to separate business and personal as a freelancer
Keeping your business and personal finances separate makes it much easier to stay in control of risks like these. As a sole trader, your personal and business money can easily get mixed up, and that's precisely when a separate account is worth its weight in gold. With a business account for sole traders, you keep your premiums, costs and administration clear, and filing your tax return becomes a lot easier.
If you want to look at the bigger picture first, read more about a business account in general, or about the difference between your business and personal account. At GoDutch, you can set up such an account quickly: you apply in 3 minutes and your IBAN and card are ready within 1 day. If you are unsure which insurance suits your work, table it with an independent insurance advisor.
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