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What kind of insurance do you need as a contractor?

Regardless of the sector you operate in and the type of contract work you do, most independent contractors will find that having adequate insurance forms a vital part of their contracts with clients. Insurance will act as a fundamental safety net for unforeseen eventualities.

Starting out on your own comes with a number of considerations, and making sure you have the right type of insurance cover is crucial.

Most umbrella companies will provide a comprehensive insurance package for their employees as part of their employment service. Typically, this will include both Professional Indemnity and Public Liability cover as standard. However, if you operate through your own limited company you will need to source your own cover.

Here we look at the types of protection available for all of the main exposures that could affect your contracting.

Public liability insurance

Public Liability Insurance protects the contractor against claims of personal injury or property damage that clients or members of the public suffer (or claims to have suffered) as a result of your business activities. It will cover the costs of damages as well as any related legal fees or expenses. Although it is not a legal requirement to have public liability insurance, you may find that clients expect you to have a minimum level of cover, according to your area or industry.

Professional indemnity insurance

Professional indemnity insurance protects you against claims made by dissatisfied clients for any potential mistakes, such as professional negligence or loss of documents or data. Your cover should include any legal costs and expenses in defending the claim, as well as compensation payable to your client to rectify the mistake.

Public Liability Insurance

As a limited company owner do I need employers liability insurance?

Employers’ Liability Insurance will protect you against the cost of compensation as a result of employee injury or illness. If you employ any staff it is a legal requirement, so for limited company contractors where you, as the owner, are the only employee, it is technically not compulsory. However, in some cases clients may stipulate that contractors must have employers’ liability insurance in place before they agree to contract. Fortunately Public and Employers’ liability insurance is usually sold as one package so this shouldn’t put you off.

Do I need IR35 insurance?

With HMRC’s focus to close Britain’s ‘tax gap’ their resources have expanded and they have introduced new measures to increase their tax receipts. They have undertaken investigations on contractors to uncover instances of ‘disguised employment’, which IR35 legislation aims to address. For this reason, many limited company contractors take out IR35 insurance (also referred to as ‘tax investigation insurance’) to cover them in the event of a status challenge by HMRC.

While the chances of coming under the spotlight from a HMRC investigation are slim, the potential financial implications of even just challenging a review can be substantial. So having cover for the costs of professional representation should not be overlooked.

What is director and officers liability?

Directors’ and Officers’ Liability Insurance offers financial protection to those who are the director or officer of a company. As director of their limited company, contractors can find themselves held personally liable for legislative breaches, health and safety failures or for breaking company law.

Need more help understanding what, if any, type of insurance cover you need?
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Further reading:

Limited Company - Umbrella Exchange

All you need to know to kick start your limited company for your contracting business.

Find out what is required from company directors before deciding if it’s the right option for you.

Umbrella - Umbrella Exchange

What do umbrella companies actually do and why are they used by independent contractors?