Contractor insurance is much like wearing a seatbelt, the chances of being involved in an accident are relatively slim, but you’re more likely to see another day if you’re buckled up, so it is with contractor insurance cover.
As a contractor there are two main reasons to get insurance cover – financial and legal.
Consider this: a contractor makes a serious mistake on a job, one that costs their client a significant sum. A client can exercise their legal right to make a claim against the contractor for the financial loss they have suffered as a result of the mistake. Without contractor insurance this could prove an incredibly costly issue for the contractor in question. Indeed, in many if not most occasions a client will legally require their contractor to have some kind of insurance in place, something their agency alone will not cover.
Additionally, for IR35 purposes, taking out professional indemnity insurance is a good sign of a contractor being involved in a genuine business that falls outside IR35.
What kind of insurance is available to contractors?
Providing advice or consultancy services to clients
Professional indemnity insurance is the most commonplace amongst contractors and freelancers alike, with most clients insisting this kind of cover is in place before a job is begun.
What does it cover?
Professional Indemnity Insurance is there to meet the cost of defending the claims made against you for any action or omission that could be considered negligible in the course of providing advice or consultancy services to clients. In this context negligence is doing (or failing to do) something that is expected of a reasonable contractor in similar circumstance which causes financial loss.
If you visit your client’s place of business or they yours
– Public Liability insurance will protect you from third-party claims for personal injury or property damage e.g. a deliveryman trips and falls in your workplace etc…
If you have employees
– Employer’s liability insurance covers any claims made against you by your employees or subcontractors
If you’re responsible for the structure of the building
– Building insurance safeguards any building owned by your company against events such as fire and floods. Accidental damage is also covered.
Other types of Insurance:
Legal expenses Insurance
Business Interruption Insurance
Where Insurance is concerned – what is the legal requirement?
Most contractors tend to be covered from negligence by holding a combined profesional indemnity insurance, public liability insurance and employer’s liability insurance. However, only employer’s liability insurance is required by law.
How much will contractors’ insurance cost?
The price of your insurance depends on multiple factors
– The work you do
– The number of employees in your company
– The annual turnover of your company
– The level of cover you choose
For a regular IT contractor with a turnover south of £150,000 you should be able to take out professional indemnity insurance, public liability insurance and employer’s liability insurance for less than £300.
On the plus side however HMRC treats contractor insurance as a business expense for tax purposes, so you can reduce the expense by lowering your own tax bill