As an IT contractor, you may need to take out specific types of insurance based on your contract conditions or may choose to obtain coverage for your 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 contractually obliged to take out insurance?
There are two reasons why taking out a specific type of business insurance policy becomes mandatory:
- 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.
- 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 work via an umbrella company, you are an employee of the umbrella scheme. In most cases, you automatically receive business insurance cover. Make sure you confirm this with your umbrella provider.
If you work via a limited company, you are responsible to 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 calamities PI covers include; negligence, loss of data or documents, and 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 back-dates your PI insurance to the date you started contracting. Run-off cover protects you for a number of years after you stop contracting.
The cover is typically provided up to £1m per claim, and premiums increase according to the level of cover provided.
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, any claims would be covered.
There is no legal obligation to have this type of cover, although you may have a contractual obligation to have it.
£5m cover is typically provided by insurers.
Employers Liability
Employers liability insurance protects your company in case one of your employees is injured (or worse) while working for the company.
This type of insurance is mandatory for all UK businesses. However, if you are the sole employee of your company (and own over half the shares), you don’t have to take out cover. Insurers typically provide £10m cover as standard.
Tax Investigation Insurance (including IR35)
As the name suggests, tax investigation Insurance covers the cost of professional representation if HMRC selects you for a tax inspection.
More extensive policies exist which cover the costs of any back taxes you are subsequently found liable for.
This type of policy will usually protect you against any type of HMRC investigation – including VAT, IR35, PAYE and National Insurance enquiries.
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.
- E-risk cover.
- 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 trying to source 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.