If you’re making the move from permanent to contract employment, you will have great opportunities for career progression, earning a higher income and increasing the flexibility and variety of your workload. However, the contract working style brings with it some nuances which you might not have previously considered as a permanent employee. With the greater financial rewards of contracting also comes increased financial risk, so it’s important to plan ahead and cover yourself. So, if you’re considering contracting make yourself aware of the types of contractor insurance available, and which are applicable to you.
Why do Contractors Need Insurance?
As a contractor you are responsible for maintaining a steady stream of income to support your lifestyle, and at a minimum to cover costs such as your mortgage and electricity bills. If you were to fall ill or be unable to work you could lose out on income, dependent on your employment arrangement. Luckily, you can insure against this.
Aside from health matters, if a client makes a claim against you for mistakes or damage on your behalf, you will bear the financial burden if their claim is successful.
Although claims against contractors are rare, they do happen. It’s likely that the client will have legal resources at hand, meaning it’s important that you’re covered in the instance a claim is made against you.
If you’re unsure about what type of cover you will need to kick start your career as a contractor, don’t panic, ContractingWISE is here to help. We’ve broken down the different types of contractor insurance, so you know what’s right for you.
The Different Types of Contractor Insurance
Professional Indemnity Insurance
Professional indemnity insurance will cover you against claims of professional negligence, or in case your work leads to a financial loss for the client. Some professions such as accountancy and financial advisory legally require professional indemnity insurance. Most clients, no matter the sector, will require you to be covered, even if it is not a legal requirement for your role.
Typically, policies cover costs of up to £1 million, but can range up to £5 million of cover. This covers defence costs including the hire of lawyers and experts.
Even if you are not legally required to take out professional indemnity insurance, without it, you could incur a heavy financial burden of thousands of pounds if a claim is made against you.
Examples of contractors that should consider using professional indemnity insurance, and why:
– IT consultants
In the IT industry contractors can be vulnerable to claims against late delivery, coding errors, or missing software.
– Finance Professionals and Management Consultants
For protection against calculation errors or poor advice.
– Medical professionals
Medical professionals require specific medical professional indemnity cover. Medical defence organisations can also offer another layer of protection.
There are highly competitive prices available for this type of contractor insurance, so even if it’s not required by your client, many contractors choose to cover themselves, to protect against the unexpected. Many umbrella companies supply professional indemnity insurance as part of their service.
Public Liability Insurance
Although contractors aren’t legally required to take out public liability insurance, many businesses consider it essential, and clients can require that you have it as a condition of your contract.
This type of insurance will cover you against claims of damage to property or personal injury due to your actions. Policies normally cover costs of up to £1 million, but in specific sectors your client may require you to have a higher level of cover.
You should particularly consider taking out a public liability policy if you’ll be working at your client’s premises, as it will provide cover against claims of damage to the client’s property or equipment. Even if this doesn’t sound applicable to your line of work, claims can arise from everyday situations, for example, if you were visiting your client’s office and accidentally spilled a drink on their computer equipment. The client could sue you for this, so having insurance will give you peace of mind that you’ll be covered for such incidents.
ContractingWISE can help source umbrella companies that offer public liability and other insurances as part of their package.
Employer’s Liability Insurance
If you have set up a limited company and operate as the sole director with no other employees, and own 50% or more of the shares, then you’re not legally required to have employer’s liability insurance. If just one of these factors isn’t representative of your situation then you will be legally required to have employer’s liability insurance.
Employer’s liability insurance is required for businesses with employees, to cover costs at a minimum of £5 million, in case an employee becomes ill or is injured in the workplace due to employer negligence.
Many clients will require you to have employer’s liability insurance, regardless of whether or not you have employees. To help simplify the process, insurers often supply public liability and employer’s liability insurance in one package, for ultimate peace of mind.
Personal Accident Cover
Unlike permanent employees, contractors don’t automatically receive employment benefits. Contractors working for an umbrella company are employed, and therefore are entitled to statutory employment rights such as sick pay, the specifications of which are determined by the umbrella. For limited company contractors however, there are no such safety nets.
If you’re a limited company contractor it’s important to invest in cover for a scenario where you become ill, injured, or unfit for work. Personal accident cover isn’t a legal requirement but will certainly reassure you if things don’t go to plan. Personal accident cover can provide you with a weekly income if illness or injury causes you to miss parts of, or not finish your contract.
You’ll probably have heard of IR35 but might not know exactly what it is. It is important to make yourself aware of IR35 legislation. Some contractors can find themselves inadvertently within the scope of this legislation which seeks to combat a specific area of tax avoidance.
For peace of mind, check all contracts carefully and if you’re unsure on the IR35 status of your contract, seek a professional opinion.
If you were to come under investigation by HMRC, the process could lead to costs being incurred, therefore IR35 insurance is an option for some contractors.
There are two types of policy available: defence only and comprehensive cover. Defence only cover will cover costs for an expert to handle your case if you come under enquiry. Comprehensive cover includes your defence costs, and also the applicable liabilities if your IR35 status is found to be incorrect.
Jury Service Insurance
Jurors are selected at random from the electoral register. It’s something that’s often not considered until the letter comes through the door. Being selected for jury duty is something that many contractors don’t account for in their financial planning, and it can catch you out.
That’s why it is a good idea to plan ahead, and make sure you’re covered in case you are called for jury service. This type of insurance is inexpensive and can provide cover of up to £500 a day in the event you can’t fulfil your contract.
Contractor insurance is available at competitive prices. Being insured can give you peace of mind and bring some sense of security to you and your family’s income for only a few hundred pounds a year.
If you’re thinking about becoming a contractor, you’ll need to have the necessary types of contractor insurance in place, and should consider taking out additional non-compulsory policies. To discuss your options and what steps to take next, get in touch. ContractingWISE has a friendly team on hand to help.