Category Archives for "Contractor Insurance"

Why Contractors Need Professional Indemnity Insurance

So you’ve done it, made the leap and go it alone. As a contractor, you are now master of your own destiny and manager of your own business. But with that freedom comes the need to protect your business and make sure it can cope when times are tough. When you were working for a large company as a permanent employee that company gave you protection. As a contractor, you need to protect yourself – from all of the mishaps and accidents, unforeseen incidents and unlucky breaks that come as part and parcel of running any business. For this reason, all working contractors need to be certain they have put the right insurance policies in place and that they keep them up to date throughout their career. This includes the three main general insurances – public liability insurance, professional indemnity insurance and employers insurance – and any smaller policies that are applicable to your particular contracting industry. In this article, we will take a look at arguably the most important of these policies, professional indemnity insurance.

What Exactly Is Professional Indemnity Insurance for Contractors?

Professional indemnity insurance is perhaps one of the most important types of insurance that new contractors should be considered when choosing what cover to arrange. Often called PI insurance, professional indemnity is crucial for any contractors who offer services or provide advice to businesses and people in a professional capacity, as it covers their expenses and legal costs if someone makes a claim that their advice has been inadequate or their services have led to clients losing money. All professional indemnity policies will provide some kind of cover against claims for the following – negligence, breach of confidence, intellectual property infringement and defamation. A lot of policies will also provide this cover retroactively, meaning if you take it up after you have been contracting for a while it will still cover all the work you have already done.

Who Should Get Professional Indemnity Insurance for Contractors Then?

All contractors, freelancers and consultants should seriously think about getting it, but it is an absolute must for those self-employed workers whose job it is to provide ideas, services, advice or designs for their clients. If there is even the slightest chance of you giving someone bad advice or services (or even of being accused of giving bad advice or services) then it is essential to get yourself covered. Professional Indemnity insurance will stop you having to worry about frivolous (or real) claims and protect you if you need to raise legal costs or even pay out settlements. Contractors in the following industries should certainly be getting professional indemnity: Business and management consultants, Training and HR consultants, accountants, IT professionals (including developers, designers, programmers and consultants,) marketing and media consultants.

Is Professional Indemnity Insurance for Contractors Mandatory?

Not legally, no. But there are certain professions in which contractors are required to have professional indemnity insurance as part of their professional certification. These include law, surveying, town planning, accounting and architecture amongst others. Each of their professional bodies insists on at least a basic level of professional indemnity insurance to protect both the client and the contractor/freelancer.

How Much Does Professional Indemnity Insurance Cost?

Generally cover for professional indemnity will cost contractors roughly between £6 and £10 a month. It is worth shopping around though and comparing policies (with a list of all the features you are looking for) online before phoning and speaking to anyone.

Is Professional Indemnity Insurance Advantageous for Your Contracting Business?

Yes, absolutely. You will find that many contracts you are competing for will include a clause that the clients will only work with contractors who have this indemnity insurance in place. Having professional indemnity insurance will both provide an extra layer of appeal to your contracting business and stop you losing out on contracts where it is a requirement.

Do I Still Have to Get Professional Indemnity Insurance if I Have Public Liability Insurance?

Yes. Both are necessary because they do very different things. Public liability insurance will cover you for any claims that are made against you for injuries, accidents or illnesses (or damage to property) whereas as discussed above, professional indemnity insurance will cover you for advice, ideas or designs. Thankfully, most insurance companies will offer you a good deal on getting the two of them together in one package.

How Do I Work Out What Sort of Level of Insurance I Will Need?

Clearly, this will be dependent on the industry you contract within but generally, most contractors arrange cover for public liability at £1 million and for professional indemnity insurance at £10 million. You may also have to adjust this amount if you work for an agency or client who specifies a higher level of insurance is required.

Contractor Public Liability Insurance

You’ve just left your old company and gone it alone. Finally, you are free and in charge of your own business – and that business is you. But before you start building that business you need to make sure that the foundations are solid and protect it against any rainy days that might turn up unexpectedly at some point in the future. When you worked as a permanent employee for a large firm you would have had all those protections built into your employment – sick pay, maternity pay, pensions etc. And if anyone decided to sue the company, it would not have affected you personally. As a contractor, things are different. You are responsible for your own admin, your own tax, pension and sick cover and most importantly, your own insurance to cover yourself when things go wrong. And this is why one of the first things any new contractor should do is make sure he or she has the right insurance in place. Which insurance should you get? There are three main types of insurance that all contractors need to look into – employers liability insurance, professional indemnity insurance and public liability insurance. In this article, we will explore public liability insurance.

What Exactly Is Public Liability Insurance For Contractors?

Public liability insurance is a type of insurance that covers you and your company for a wide range of scenarios in which someone, or something, becomes injured or gets damaged because of you or your business and you are then held responsible. If your business interacts with the public (including other businesses and clients) in any way (which of course it will) then you need to seriously think about purchasing public liability cover. If you visit clients at their place of business or if you have clients come to your office or to your home office then you will need it. You might have clients come and visit you who trip over some storage boxes you have lying around and get injured. Or you might do some work at their premises and break some of their equipment accidentally. In both cases, public liability will have you covered. This applies to contractors across all fields. Say you are an IT contractor who installs software on site for clients. You might drop your coffee on one of their computers and cause some serious damage. Or you could be a website designer who works from a small office and you invite a client to come to the office and the same thing happens. In these and hundreds of other scenarios, public liability insurance will have you covered.

Is it Mandatory? Do I Really Need Public Liability Insurance?

Of the three insurance types mentioned above, only Employers Liability Insurance is legally required (if you have more than one employee.) But that’s not to say you shouldn’t still view it as essential. Indeed, many professional bodies (such as in law, accountancy or architecture) will insist you have it before issuing you with their accreditation. And you will very quickly find that every major client who you want to work with will probably have a clause in their contract that insists you are covered by both professional liability insurance and public liability insurance. Additionally, even if all your clients don’t insist on it, it just looks more professional to have it. And the most important reason of all? This is your business and your livelihood. You might never put a foot wrong but you can’t control other people. If someone claims against you, either with good reason or frivolously, it could end up costing so much as to put you out of business and in debt. Why not pay a small amount just to have that peace of mind that you are covered? And one final point – if your business does grow and you take on staff, you will need public liability insurance to cover their actions too, in case they cause someone to sue your company.

Are There Any Advantages To Getting Public Liability Insurance For Contractors?

There sure are. As mentioned above, you will inevitably come across contracts that have a clause requiring you to be covered adequately by insurance. Having it already in place means you will never miss out on contracts and will add that extra sheen of professionalism to your business.

Do I Need Both Public Liability Insurance and Professional Indemnity Insurance?

Yup. Both do different things and both are equally important. Professional Indemnity insurance covers you against claims made relating to advice you gave or a service you provided whereas public liability is all about injury to the person or to property. However, most insurance companies offer very good combined rates to contractors signing up to both types of insurance in one package.

What Amount of Insurance Should I Get?

This depends on a number of factors such as the industry you work in, the type of work you do and the requirements of the agencies or clients you work for but as a rule the basic contractor cover sits at around £10 million for professional indemnity insurance and £1 million for public liability.

What Should I Look At When Comparing Providers?

Firstly, that they offer the base level of cover that was just discussed but preferably that they can offer more than that – either £5 or £10 million for public liability. And secondly that they can do a deal and bundle the two (or three) main insurance types together for a decent price compared to buying them as stand alone products.

Income Protection Insurance for Contractors

Contractors need to think about covering themselves with insurance more than most other workers as they have left behind the security and perks of permanent employment for larger companies. The cover that comes with that permanent employment package should not be underestimated, which is why it is essential from the outset that contractors get all their insurance sorted out. Most contractors will rightly invest in the big three insurance types, public liability, professional indemnity and employer’s liability insurance. However, because contractors do not get sick pay and sick leave like workers employed by companies, there is another type of insurance that might be worth considering – income protection insurance. Income protection insurance (or Permanent Health Insurance) is a type of insurance that protects you if a situation arises in which you cannot work for any period of time by giving you a replacement income for that period. In purchasing income protection insurance you are essentially purchasing peace of mind that you won’t fall behind with your mortgage or loans or face a drop in your current lifestyle if a rainy day comes along unexpectedly.

Ok, So How Does Income Protection Insurance Work?

It’s actually very simple. You, as the contractor, take out an insurance policy with a specialist contractor Permanent Health Insurance provider and they agree to pay you a percentage of any lost income if you have an accident that puts you out of work or you cannot work due to ill health. How much that policy costs will depend on the deferred period (the waiting period) you have selected. The deferred period is the length of time that you have to wait while out of work before the policy starts to pay out. Normally, this period will be anything between a month and a year. It is up to you to decide how much time would work for you but obviously the longer you are able to wait for payment, the lower the premiums on your insurance will be. If you opt for the shortest period – 1 month – then you will pay a lot more in premiums but of course you would also be covered a lot quicker in cases of injury or short term illness. On the other hand, if you were only worried about long term illness and had some savings put by you could pay much cheaper premiums but have to wait between 6 months and a year for payment. Those premiums are paid out of your net pay and if you were to make a claim at any point the replacement income would be paid back to you directly without any added taxation issues.

Most permanent health insurers will let you cover yourself for an amount up to 65% of your salary and dividends (gross) and some providers will also include split dividends. As soon as you no longer require cover you can cancel anytime without having to give notice or face penalty charges.

How Do I Choose The Best Income Protection Insurance For Contractors?

With hundreds of different providers out there all offering variations on the same sort of policy, how do you find a policy that is exactly right for you?

The first thing you should do is draw up a list of exactly the features you are looking for from your insurance – the preferred length of the deferred period, the amount you want to pay for premiums, how much income you want to cover etc. When you do all of this, make sure you are realistic about how much income you will actually be needing if disaster strikes. As mentioned above, you are normally allowed to protect up to 65% of your current income, but you might decide to protect less than this in order to reduce those premiums. Ask yourself how much you will actually need to live off if the worst happens and you are out of work for a long period. You will also need to check the policy to make sure that the figures they quote you are inflation proofed. Because of how inflation works, what you think you can live off right now will not necessarily be manageable in 7 to 10 years time. If you want to cover yourself against inflation, make sure the policy you join has something called indexation (also known as escalation) which gives you an incremental increase in the amount insured every year. Also, make sure that your policy covers you up till your date of retirement. That’s because if you are seriously injured you might never be able to return back to work so it is prudent to cover yourself all the way until retirement!

Does Income Protection Insurance Cover Dividends?

Next, you want to ensure that the insurance policy you sign up with covers your dividends too. Most likely you will be using a contractor insurance specialist who will know their way around contractor financials and will understand how your income works. Because a large part of most contractors’ income comes through dividends it is obviously essential that these are covered in any policy.

Is Income Protection Insurance Industry Specific?

You also need to check that the policy will cover you against specifically being unable to work in your particular contracting industry. Why? Because a number of policies will only pay out if you are not able to work in any role, rather than just your contracting role. You absolutely must avoid policies with this clause in them, otherwise, the insurance company could argue that though you cannot work in your contracting role, you could still do some kind of menial labour – and therefore they would not pay you.

Lastly, and most importantly, once you have chosen a company, do your research on them. You need to have confidence that they will do the right thing if you ever need them and not try to wriggle out of it. Before you sign up it is perfectly reasonable to ask the company for some statistics about how often they have paid out in similar circumstances and for instances when they haven’t paid out. Similarly, ask your own financial advisor and your insurance broker what they can tell you about the company and if they have had any experience with them in the past and do your own research on the internet to see how other contractors have reviewed them.

Health Insurance for Contractors

After sorting out their main contractor insurance policies (such as public liability insurance and professional indemnity insurance) which look after their businesses, most contractors turn next to the other area that they used to have covered when they were working in paid employment for a larger company – health insurance. And the first question that all contractors ask is ‘what health cover can I get via my limited company?’

Claiming Medical Expenses Through Your Limited Company

In a nutshell, your limited company is permitted to cover the costs of as many expenses of a medical nature as is necessary (or as you want) but you personally will be taxed the value of the benefits in kind that you receive as part of the company. Additionally, your limited company will also be required to pay its Employer National Insurance contributions (also known as NIC’s) at a rate of 13.8% of the value of the benefits in kind. To put it another way, you can only get out of paying a personal tax on any health and medical related benefits if your company itself benefits from paying that expense. To take one example, businesses are permitted to pay for the eye tests of their employees if those employees use computers, but if they want to pay for their employee’s health insurance then both the employee and the company have to pay additional tax. Below we will look at these in a bit more detail, starting with Health Insurance:

Contractor Health Insurance – Is It Worth It?

When it comes to contractor health insurance, your company is permitted to pay for the cost of your personal health insurance and then it is allowed to offset the costs against its bill for corporation tax. However, as mentioned above, because you will be benefiting personally from the health policy, you will also have to pay some extra tax on the value of that benefit. The exception comes if you are contracting overseas, in which case the costs of medical treatment are then allowable and no BIK (benefits in kind) charges will apply.

With all that in mind, it is often the case that it is better to get your health insurance through your limited company as firms tend to be offered better value and more comprehensive cover than individual contractors. Indeed, the latest figures from the government show that more than 2.5 million employees in the UK currently get their health insurance from their employers, proving that it is a decent perk and worth considering. Nevertheless, it is worth sitting down with your accountant and working out the difference between the policies you would get on your own or through your company and which would work out cheaper in the long run. 

Permanent Health Insurance for Contractors

Permanent health insurance policies are policies which cover you in case something happens that means you are no longer able to work. Depending on what stage you are in your contracting career, the costs of insurance will vary greatly. That’s because you will be insuring yourself based on how long you might be out of work and how much you wish to receive in the event of making a claim on the policy, as well as what is known as the deferred period, which is the time between when the claim is made and when the payments start. As with other policies, the cost of permanent health insurance can be taken up by your limited company and then offset against tax. However, in the event of you making a claim on the policy, BIK charges will apply on any payments that you then receive. On the other hand, should you pay for the policy out of income post-tax, the payments that you might receive at a later date would be free of tax.

Eye Tests

As mentioned above, eye tests are allowable business expenses if you sit at a computer for any part of your work and you will not face any BIK liability.

Can Contractors Claim For Medical Check Ups?

You are also permitted to claim back the cost of one medical checkup and one general health assessment per employee at the company without facing any BIK liability. A health assessment is defined by HMRC as an assessment that is used  “to identify employees who might be at a particular risk of ill-health.” And they define a medical check-up as a “physical examination of the employee by a health professional for (and only for) determining the employee’s state of health.”

Consequently if you, as an individual, had already planned to have a health assessment then it would be worth your while doing it through your limited company as you won’t be taxed on any benefit from it.

Is Medical Treatment An Allowable Expense?

Medical treatment can be seen as an allowable expense if it is needed for an injury that occurred while you were going about your contracting work. Additionally, as mentioned above, medical treatment that is needed whilst working overseas is also allowable as a non-taxable expense. 

Can I Claim for Membership of a Gym or Health Club?

This one is unlikely to fly. It is very difficult to claim gym memberships as legitimate business expenses. Why? Because although a company would certainly benefit from its employees being healthy, the cost of them being healthy still needs to be borne by the employees themselves. If the company was to pay the employees gym membership then it would also have to pay employers NIC’s on the cost and then there would also be BIK charges when it comes to paying tax at the end of the year. For a contractor with a limited company, it is most likely better value just to get the gym membership themselves.