As an IT contractor, you may be obliged to take out certain types of insurance due to the terms of your contracts, or may wish to be covered simply to provide yourself with some peace of mind.
Here, we look at the types of policy that are available to contractors, which types of cover you must have, and how to keep your policy costs at a reasonable level.
Are you legally obliged to take out insurance?
There are two reasons why taking out a specific type of insurance policy becomes mandatory:
1. Your client may it a condition of the contract offer that you have certain types of insurance in place – such as Professional Indemnity cover.
2. Most businesses must take out Employers’ Liability Insurance, however limited companies with a sole employee are exempt from this obligation, as long as they own 50% of the shares in the company, or more.
If you are working via an umbrella company, you will be an employee of the umbrella scheme, and in most cases, you will automatically receive business insurance cover. Make sure you confirm this with your scheme provider.
Limited company contractors are responsible for arranging their own insurances.
What types of insurance are available to contractors?
- Professional Indemnity – covers you in case a client sues you for making a costly mistake whilst undertaking your contract duties. Examples of the calamities PI covers include; negligence, loss of data or documents, unintentional breach of copyright. PI will cover the professional costs of dealing with any claims, and possibly any damages awarded to the client. Retroactive cover will back-date your PI insurance to the date you started contracting, and Run-off cover will protect you for a number of years after you cease contracting. Cover is typically provided up to £1m per claim, and premiums increase according to the level of cover provided.
- Public Liability – in case a member of the public is injured, or property is damaged as a result of the actions of your company (or its employees). For example, if you damage computer equipment at your client’s site, any claims would be covered. £5m cover is typically provided by insurers.
- Employers’ Liability – in case one of your employees is injured (or worse) whilst working for the company. This type of insurance is mandatory for all UK businesses, but if you are the sole employee of your company (and own over half the shares), you don’t have to take out EL insurance. £10m cover is typical.
- Tax / IR35 Protection – covers the cost of professional representation if HMRC selects you for a tax inspection. More extensive policies exist which may also cover the costs of any backtaxes you are subsequently found liable for. ‘IR35 insurance’ is really just targeted tax investigation insurance, which also covers VAT, PAYE and National Insurance enquiries. Annual premiums tend to be surprisingly reasonable – Qdos is the leading provider of IR35-related insurances.
- Office Insurance – this will cover you if any of your equipment is damaged or stolen, or if you make a claim for damage suffered to your office premises (if applicable).
- Other Types – alongside the major types of business insurance, you can apply for a wide range of additional insurances, including Directors’ and Officers’ Insurance, e-risk cover, and travel insurance. Ask your prospective insurer what types of cover are available, either as add-ons, or to include (potentially for a discount) in a bundled policy.
How to apply for a contractor insurance policy
The ‘contractor insurance’ market is fairly well established, with several major players providing specialist cover.
You will typically find that you can take out a bundle policy, which includes Professional Indemnity and Business Liability cover, with the option to add further extras, such as ‘legal expenses’ cover.
Buying insurance in a bundle tends to be cheaper that trying to source each policy type from different providers.