As an IT contractor, you may need to take out specific types of insurance if required by the terms of your contract, or you may choose to obtain cover simply for your peace of mind.
Here, we look at the types of policies 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 contractually obliged to take out insurance?
There are two reasons why you may need to take out a specific type of business insurance policy:
- Your client may make it a condition of the contract offer that you have certain types of insurance in place – such as Professional Indemnity cover.
- Employers’ Liability Insurance is compulsory for most businesses that employ staff. However, limited companies in which the sole employee owns at least 50% of the share capital are exempt.
If you work through an umbrella company, you are an employee of the umbrella company. Your provider will usually have relevant business insurance in place, but make sure you confirm exactly what cover is provided.
If you work via a limited company, you are responsible for arranging your own business insurance.
What types of contractor business insurance are available?
Professional Indemnity
PI insurance covers you in case a client sues you for making a costly mistake whilst undertaking your contract duties.
Examples of the problems PI may cover include negligence, loss of data or documents, and unintentional copyright infringement.
PI can cover the professional costs of handling a claim and damages covered by the terms of the policy.
Retroactive cover can protect you against claims arising from work carried out before your current policy started, subject to the retroactive date and policy terms. Run-off cover protects you for several years after you stop contracting.
Cover is typically available up to £1m per claim, with premiums increasing according to the level of cover provided.
Find out more about Professional Indemnity insurance
Public Liability
Public liability insurance protects you in case a member of the public is injured, or property is damaged as a result of the actions carried out by your company (or its employees).
For example, if you damage computer equipment at your client’s site, a resulting claim may be covered by your policy.
There is no legal obligation to have this type of cover, although you may have a contractual obligation to have it.
Different levels of cover are available, so check whether your client or agency specifies a minimum amount.
Find out more about Public Liability insurance
Employers’ Liability
Employers’ Liability Insurance protects your company in case one of your employees is injured (or worse) while working for the company.
Most businesses with employees are legally required to have Employers’ Liability Insurance. However, if you are the sole employee of your limited company and own at least 50% of its share capital, you are exempt from this requirement.
Where Employers’ Liability Insurance is required, the legal minimum is £5m, although insurers typically provide £10m cover as standard.
Find out more about Employers’ Liability insurance
Tax Investigation Insurance (including IR35)
As the name suggests, tax investigation insurance covers the cost of professional representation if HMRC selects you for an investigation.
This type of policy will usually protect you against the professional costs associated with various HMRC enquiries, potentially including VAT, IR35, PAYE, and National Insurance.
Some more extensive policies may also provide cover against certain tax liabilities. This differs from standard tax investigation fee protection and is subject to the insurer’s terms and exclusions.
Find out more about Tax Investigation Insurance
Other types of business insurance
Most contractors won’t need to consider any other types of policy beyond those listed above.
If you’re a contractor in other sectors – an architect or surveyor, perhaps – you may need to take out extra cover specified by a professional body.
Other – usually optional – types of cover for business owners in general include:
- Office buildings insurance.
- Office contents insurance.
- Directors’ and Officers’ Insurance.
- Cyber insurance.
- Travel insurance.
How to apply for a contractor business insurance policy
The ‘contractor insurance’ market is well established, with several major players providing specialist cover.
Many offer bundled policies, which include Professional Indemnity and Business Liability cover. Many niche ‘extras’ can be added on, such as ‘legal expenses’ and ‘gadget’ cover.
Buying insurance in a bundle tends to be cheaper than sourcing each policy type from different providers.
We have partnered with one of the best-known insurers in the contracting world for business-related cover – find out more via Qdos.