When you go it alone as a freelancer or contractor it is important to remember you are the sole manager of your own business now. Contracting brings a great deal of freedom but that freedom also brings with it responsibilities. Whereas most people are protected by the companies they work for, contractors will need to protect themselves against any unforeseen circumstances or mishaps in their working lives by taking out their own individual policies. As such, all contractors need to make sure they have fully explored all the important types of professional insurance and chosen the ones most appropriate for their particular industries. With that in mind the following is a brief guide to the types of insurance that are available for contractors.
What Types of Contractor Insurance Are There?
There are three main insurance types that most contractors consider, all of which protect them in some way from claims of negligence. They are public liability insurance, professional indemnity insurance and employers liability insurance. Additionally, there are other more specific policies worth considering, such as IR35 Insurance, Income Protection Insurance, Business Interruption Insurance, Personal Accident Insurance, Office Insurance and Cyber & Data Risks Insurance.
What Does Contractor Insurance Cover?
Each of the insurance types protects you and your business in a different way. Here are the main ones:
Professional Indemnity Insurance for Contractors
One of the most important insurances for contractors to consider is professional indemnity insurance. If your contracting business involves providing any sort of professional service or any sort of advice to clients and other businesses then this kind of insurance is vital. It provides cover for you in case you face a claim that your advice or service has resulted in a client or business experiencing a financial loss. With professional indemnity insurance, you are covered for the costs of settling such claims. A professional indemnity insurance policy covers you against claims for negligence, defamation, breach of confidence and intellectual property infringement. You will also be able to find some firms that provide this cover retrospectively to give you some cover for any work you have undertaken in the past. Additional things to think about when weighing up professional indemnity insurance include (a) whether you have a contractual requirement for professional indemnity insurance with any of your clients (b) the size of your contracts and clients and the projects you are working on (c) how much legal fees might cost you if the worst happens and you did face a claim of negligence and (d) how much you could have to pay in compensation if you lost a claim against you.
Most brokers will sell professional indemnity insurance both as a stand-alone product or in a combined policy with public liability insurance.
Public Liability Insurance for Contractors
Another insurance that every contractor should think about is public liability insurance which covers you in case a person is injured or damages their property in some way because of your business. In essence, if you deal with the public in any way, if you have clients who visit your office or place of business or if you (or one of your employees) visit other people’s premises then you might want to think about public liability insurance. This last point is important – most people assume public liability insurance is only needed if you have visitors to your own business premises but actually you could still be liable to a public liability claim if you somehow damage your client’s property when you visit their offices.
As with professional indemnity insurance, public liability insurance can be bought on its own or in conjunction with other contractor insurances.
Employers Liability Insurance for Contractors
Whilst public liability insurance and professional indemnity insurance are optional, it is actually a legal requirement for any business with employees in the UK to get a minimum of £5 million employers liability insurance. This would cover you and your business against any compensation and legal costs that you might incur if you were sued by one of your employees who might be claiming that they have become ill or been injured as a result of their work for you. Anyone who works for you would be covered by this insurance, even if they are self-employed contractors or just volunteering for you.<
Office Insurance for Contractors
Office insurance is insurance that covers your workplace whether you run a small office or work from home from a home office. It can cover all kinds of specialist areas, including insuring any portable equipment, insuring against equipment breakdown and insuring the building you work in.
Contents Insurance for Contractors
Often included under office insurance, contents insurance is important if you have a lot of specialist or expensive equipment as part of your contracting business. This might include computers and laptops, video cameras, digital cameras, specialist printers or any other product used to enhance your business. Should any of these break, be stolen or be vandalised you will might not be able to carry out your work as usual and might face prohibitive costs to repair or replace. Good contents cover should reimburse you in full for the cost of the item in question to be repaired or replaced quickly.
Business Interruption Insurance for Contractors
Contractors and freelancers get a lot of freedom from going out on their own but there are obvious risks too, the most common of which is experiencing time out of work and being unable to earn any money. This might be because of illness, broken equipment or offices, or even facing a lawsuit – whatever the reason, unlike regular employees who are covered by their companies, contractors can find such circumstances to be career-ending. Business interruption insurance offers some protection against this, by allowing contractors to claim for any time they are out of work, ensuring that there is no loss of income.
Personal Accident Insurance for Contractors –
As with most personal accident policies, personal accident insurance will cover a contractor against any accident that might leave them unable to perform their contracting duties. If this was to occur the insurance would pay the contractor’s business a weekly sum until they were back at work. Furthermore, if the injury was to result in death or permanent disability, the business would receive some kind of lump sum payment.
Cyber & Data Risk Insurance for IT Contractors –
If a contractor works in IT, carries a lot of important data on their computer systems or holds onto data for their customers then it might be worth investigating cyber and data risk insurance. This is a relatively new type of insurance that covers a business against any kind of data breach or any malicious attack by hackers that causes damage to their company computer systems. As well as covering the costs of repairing systems it will cover any issues that arise as a result of a breach, often even including reputation management.
Am I Required By Law To Get Contractor Insurance?
No. All of the above are optional, with the exception of employers liability insurance. And it is also important to remember that employers liability insurance is only necessary if you actually have employees! If you are the only employee or director of your contracting company then you are not required to invest in employers liability insurance either.
Ok, If Most of Them Aren’t Compulsory, Why Should I Bother?
As with most types of insurance in life you are essentially covering your business against the unexpected and the unwanted. You might be sure that you will never be negligent in your business but can you be absolutely sure no one will ever claim negligence against you? Even cases that are based on a pack of lies will still cost you a lot of money in court fees! And who can know what accidents might happen in the future? Furthermore, getting insurance might actually help your contracting business. There are now a large number of clients and recruitment agencies out there who actively require their contractors to have one or both of public liability insurance and professional indemnity insurance before they will work with them. Lastly, keep in mind that when it comes to IR35, purchasing insurance for your business is a good sign that you work for yourself.
If I Do Get Contracting Insurance, What Levels of Cover Should I Go For?
Obviously, this will depend on the type of contracting you do and the type of industry you work in but most contractors tend to insure themselves against public liability for £1 million, professional indemnity insurance for £10 million and employers liability insurance for £10 million. Any clients or agencies who require insurance will also specify the levels that they require.
How Much Will It Cost Me?
This will, of course, vary from broker to broker and be based on the type of contracting you do and at what sort of level. However, an average contractor with a yearly turnover under £150,000 would be able to buy all three essential policies (public liability, professional indemnity and employers insurance) for around a total of £300.
Do I Need to Find A Specialist Contractor Broker?
No, most insurance brokers will be able to find you cover. The most important thing to do is to go online with a pre-prepared list of everything that you require from a policy and then shop around, comparing prices until you find the best policy at the best price.