Do I need contractor insurance? In a word – yes. Contractors have legal obligations towards their clients, which means you can be liable for losses caused by your actions. If you make an error, you bear financial responsibility for it and although it’s rare to find yourself on the receiving end of a claim, the resulting bill can be ruinous. Therefore it’s imperative to have contactor insurance.
Even if you work through an umbrella agency, it’s unlikely that your contract with them will protect you, so it’s important to have the right contractor insurance.
But which insurance should you choose? After all, no one wants to pay for insurance that is irrelevant or unnecessary. ContractingWISE can help you figure out what sorts of insurance are required for your profession, what the benefits and risks are.
Types of contractor insurance:
Professional indemnity insurance
This covers you for professional negligence and would usually protect you against a disgruntled client who has suffered a financial loss. Many clients require you to have professional liability insurance.
IT consultants are particularly vulnerable to breach of contract claims for late delivery or missing software features. Management consultants whose advice leads to unexpected losses might need to defend a claim. Accountants need protection against calculation errors, or poor advice.
Doctors in the UK should consult a medical defence organisation about the sort of cover they require, while other medical professionals will need medical professional indemnity cover.
Most policies cover claims up to £1million, but can go up to £5m.
Public liability insurance
This covers you for claims from third parties ie members of the public or colleagues who have been injured or suffered some loss. A liability insurance policy also covers your clients’ property, if you accidentally damage something in their office, for example. This is not usually a requirement but most businesses consider public indemnity insurance an essential expense and some clients require it. Policies usually cover you up to £1m.
Personal accident cover
If you get injured or sick, then no one will be giving you sick pay. A long-term illness or injury could keep you out of work for some time so it’s worth considering a personal accident policy which would give you a weekly income.
Other types of insurance
- Employer’s liability insurance, sometimes known as subcontractor insurance. This is a legal requirement if you do have an employee, but even if you’re a sole trader, this can help establish your IR35 credentials. HMRC will be more likely to consider your limited company as a legitimate enterprise if you can send a replacement – ie an employee – to work for your client. This would cover you for £5m.
- Jury service insurance. Expenses for jury service are unlikely to cover your daily rate, so some people take insurance against this.
Some insurers will provide you with contractors all risk insurance which will include several different types of insurance within one policy.