When you are running your own company, contractor insurances are a key consideration on an ongoing basis.
What’s more, when you start up your own company, you will very likely need to take out insurance for your business however what types of cover do you need?
Four other policies that are specifically for contractors and are worth considering are:
- Contractor Mortgage
- Critical illness
- Income protection insurance for contractors
- Relevant Life Insurance
Your contract will more than likely state what level of cover you need to carry out your contract work. Here we take a look at the types of contractor insurances that are out there and why you might need them.
There are three types of business insurance that you should consider. These will protect you against potential incidents that could lead to financial losses or damage. The three types of policy are:
- Professional Indemnity Insurance (PI)
- Public Liability Insurance (PL)
- Employers Liability Insurance (EL)
Further details on the types of insurance
PI Insurance -initial considerations
PI insurance is a very key part when you provide a professional service and many will take this out as part of their contractor insurances.
However, it is not compulsory although the rules of some regulators mean that you do need it for some professions. These will include accountants, financial advisers, and solicitors. Some client contracts also require it.
You may be in a career that consists of or involves giving professional advice or services. If this is so, you are at risk of a client bringing legal action against you if they suffer a financial loss due to your negligence.
PI insurance covers you should you make a professional mistake. Such an error can potentially be very costly. The insurance is in place to protect you and your business. Please note, the policy covers defense costs. It also covers any liability found owing in the event of a claim, up to the limit of indemnity. Therefore, here are some examples of what this includes:
- Professional negligence. For example, give a client poor advice or make a mistake in a piece of work for them
- Loss of documents or data
- Unintended breach of confidentiality. Such as sharing sensitive client information by accident without permission
- Libel and slander
- Unintended intellectual property infringements
How much PI cover do I need?
PI insurance -further considerations
Depending on the size of your business and or your clients, you will need to get your protection accordingly. Your contract may set out a minimum amount of cover. What’s more, the governing body or trade institution that you belong to may state this.
How much does PI insurance cost?
Certain factors affect the cost of PI insurance. These include:
- The nature of your services
- Your business’ annual turnover
- The limit of indemnity
- Whether you would like to insure past work
- The jurisdiction that governs your services
In general, the majority of contractors will need to take out PI as part of their contractor insurances.
PL insurance is a policy that covers an insured business. It is in the event a third party proceeds in making a claim. It would include a member of the public, a customer, or a client. For example, one of these may suggest that the insured business has caused bodily injury or property damage in the course of their services.
The policy is in place to cover any legal costs should such a third party bring legal action, and the policyholder’s liability that may result.
In most cases, PL insurance is not a legal requirement for service providers. However, this should not undermine its key importance. What’s more, PL insurance is purchased by those who tend to come into contact with third parties. To clarify, this will include shop owners, tradespeople, restaurants, and hairdressers. Furthermore, it will also include self-employed people who carry out work with clients. Indeed, this is true of contractors who work at client sites. Its importance is a reflection of the regularity with which you need the policy when you are under contract.
In general, contractors may consider taking PL out as part of their contractor insurances. In fact, many insurance providers will package this up with PI as part of the contractor insurance.
EL covers your company in the event an employee suffers an injury, illness, or accidental death. As a result, this looks to hold the employer responsible. PL does not cover you for these disputes, as your employees are not third parties.
EL insurance covers the policyholder where a claimant makes a case against them that suggests they have breached the duty of care. Please note, for most businesses with employees, EL is a legal requirement. This is in contrast to PL insurance, which is not. The policies have their similarities and differences. However, it is common practice for providers to offer EL and PL under the same policy.
In general, due to not employing external staff in most cases, most contractors will usually not take EL insurance out as part of their contractor insurances.
Tax Insurance policies
There are two tax insurance policies that are a type of contractor insurance and these are available for contractors. They are Tax Enquiry Insurance (TE) and Tax Liability Cover (TLC35).
TE insurance provides you with defense in the event of a range of HMRC inquiries. It is including but not limited to IR35 inquiries.
TLC35 is a more in-depth tax insurance policy. TLC35 is designed with the threat of IR35 in mind. It includes everything that is part of the TE insurance as well as the tax, interest, and penalties due that follow an IR35 inquiry.
Contractor insurances are a key consideration if you are working as a contractor. To sum up, it is key to take a look at your business needs and you need to have the appropriate cover in place for your business. To obtain a quote for all necessary business insurances, including IR35, please click on Business Insurance for Contractors.
I also have a separate article that covers critical illness cover.
Link to Contractor Advice UK group on LinkedIn https://www.linkedin.com/groups/4660081/