As a contractor, you have a legal obligation to your client to ensure that your work is carried out properly and according to the client’s specifications. While employees can usually rely on their employer to provide a safety net, if you make a mistake as a self-employed contractor, you may be financially liable and that could mean that your assets – including your home – are at risk.
So it’s vitally important to make sure you manage different areas of risk by having the right kind of contractor insurance. There are several different types of self-employed insurance that contractors may need, not all cover is required, some is important, and some is only relevant for some contractors.
Professional Indemnity Insurance
This type of insurance protects contractors against claims made by their clients. The most common type of claim is for negligence but can also include copyright infringement, such as plagiarising other people’s work in a report, breach of confidentiality by sharing information without the client’s permission, and libel – making defamatory statements about another person or company.
When is it needed: if you make a mistake or give bad advice during your work. This might be because of late delivery of a software package for an IT consultant, or calculation errors by an accountant.
What does it cover: Most policies cover claims up to £2 million but can be increased to £5m.
Required: Professional Indemnity Insurance is required by contractors and the majority of clients will insist you have it.
Public Liability Insurance
Members of the public or colleagues who have suffered an injury or loss may want to bring a claim against you.
When is it needed: If you have business premises and receive visitors relating to your work then you may be responsible for injuries or losses. If you deal with the public on a regular basis, you may also need this. The policy may also cover your clients’ equipment
What does it cover: Up to £5 million.
Important: Public Liability Insurance is important for contractors and most clients will insist you have it.
Tax Inquiry Insurance
If HMRC decide to launch an investigation into your tax affairs, then you may need to pay for professional help in dealing with it. Some companies might refer to this as IR35 contractor insurance or tax liability cover.
When is it needed: If you need to defend your IR35 status, deal with NIC disputes, VAT payments, or ‘income shifting’ disputes under Section 660A.
What does it cover: Expert fees up to £50,000.
Relevant for some: Tax Inquiry Insurance may not be required for contractors using umbrella companies, but those using personal service companies or have complex tax affairs may find this beneficial.
Jury service and legal protection
Although some people can be exempted from jury duty, the courts are increasingly likely to insist that someone selected for jury service does perform their public duty. Cover will usually include other types of legal insurance so that you can call on the services of a lawyer if you need to.
When is it needed: If you’re selected to serve on a jury, or for the range of other types of dispute that are not usually covered by other types of protection, such as defending against health and safety prosecutions, debt recovery, and disputes about property, employment and contracts.
What does it cover: usually £50,000 of legal cover and up to £500 per day covering jury service.
Relevant for some: If you can’t show that your livelihood would be seriously affected by performing jury duty, you may need to defer it and slot it into a gap in your work schedule later on.
Contractor sickness cover
Self-employed people are the most vulnerable to income losses due to sickness. A short-term illness might not cost you a contract, but anything more serious can leave you without any income at all. You may also want to consider Life Insurance and Personal Accident Cover.
When is it needed: The older you get, the more likely you are to require medical help, but younger contractors may also need this. Even apparently healthy people can have a hidden condition, and if your job puts you in potentially risky situations such as in construction or the oil and gas industry, then you may also want to consider sickness cover.
What does it cover: Cover usually starts with a tax-free lump sum of £100,000, but if you have a larger contractor mortgage or other commitments you may need more.
Important: Critical illness insurance is particularly important for contractors who might be the main breadwinner for their family, or who have significant liabilities.
Contractors who travel frequently may need business travel insurance, particularly if travel plans are subject to change at short notice.
When is it needed: Contractors whose clients have offices overseas may need to travel as part of a contract and a delayed, missed or cancelled flight can play havoc with your work schedule and other commitments. This will also usually cover you if your equipment is lost, damaged or stolen.
What does it cover: Business travel insurance will usually cover both business and leisure travel on an annual basis.
Relevant for some: Contractors who do not have arduous journeys to meet their clients may not need travel insurance, but travel cover can be useful even for domestic journeys.
Legal contract review
An IR35 contract review will examine contracts for tax purposes, but some contractors want a more thorough legal analysis of contracts to pick up other potential risks and issues.
When is it needed: Contractors who have complex relationships with their clients may need a legal contract review. This will cover issues like intellectual property rights – which may be important for IT consultants wanting to use software and coding for other clients – restrictive covenants and other obligations, as well as legal points that may not have occurred to either client or contractor.
What does it cover: A root and branch review of a contract by a qualified lawyer.
Relevant for some: Some contractors will be comfortable with their contracts, but others may need guidance if they are presented with lengthy contracts from clients which may contain clauses that create a risk for the contractor.
Pick the right insurance provider
Having selected the types of insurance you believe you need, the next step is to figure out which insurer is the right one for you. Cheapest is not always best – some insurers may not pay out in all circumstances, or may exclude certain types of events from their cover. Things to check include whether or not the insurer is a specialist in this type of cover, what customer service it offers, whether it can combine different types of insurance into a single policy and whether it has a track record of refusing a large percentage of claims.